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RBI Moves to Shake Up Governance at Banks

The Reserve Bank of India’s discussion paper on “Governance in Commercial Banks in India” is refreshing in that it takes an approach to governance that is ownership-neutral. This shows a recognition that there are governance issues at private banks, not just at public sector banks. The significant proposal is distancing of four key functions at banks from the chief executive officer. The RBI may benefit from incorporating radical proposals made in other places such as the United Kingdom.

Reining in Bankers’ Pay

The Reserve Bank of India’s guidelines on compensation for top management of banks are more generous in respect of variable pay than those of the European Union. However, they are a step forward in that they address an important lacuna in the existing guidelines: the non-inclusion of stock options in variable pay. The guidelines should serve to set a cap on the total compensation payable to bankers. As important are the disclosures in respect of top management compensation that the guidelines mandate.

IL&FS Was an Avoidable Crisis

The infrastructure Leasing and Financial Services Limited, a systemically important non-banking financial company, has defaulted on its debt repayments. This has created turmoil in the NBFC sector and in the financial markets. Many analysts allege serious malpractices and fraud at IL&FS. Whatever the truth of these allegations, the fundamental problem at IL&FS was that of illiquidity arising from the use of short-term funds to finance infrastructure. The failure to address illiquidity early enough has pushed the company towards bankruptcy.

Revamping Bank Regulation

One of Donald Trump’s big election promises was a substantial rollback of bank regulation. Trump and his Republican followers believe the regulations ushered in by the Dodd–Frank Act in the United States (US) are too onerous and too complex. They think it could render large US banks uncompetitive,...

Other Days, Other Times

T T Vijayaraghavan (TTV), who passed away recently, was a member of the core group of journalists that launched the Economic Times (ET) in 1961. TTV joined the paper as assistant editor and served it with distinction for two decades. The other key members at the inception of the paper were: P S...

Public Sector Banks Are Adrift

With credit and deposit growth slowing in key sectors and only retail credit growing, low capital adequacy ratios of banks, senior management changes in the offi ng, and bank mergers, the National Democratic Alliance government needs to ask itself what it envisages for public sector banks, and indeed for the Indian economy.

‘On-tap’ Bank Licences

Critically evaluating the draft guidelines for “on-tap” bank licences put up by the Reserve Bank of India, it is argued that India’s banking system is already sufficiently competitive, and there appear to be few who would be willing to enter the banking business. Entry of newer players, especially those with corporate backing, cannot be the priority at the moment. The priority over the next two or three years has to be the resolution of the non-performing assets problem and strengthening of the existing players.

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