ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

T T Ram MohanSubscribe to T T Ram Mohan

Bank Consolidation : Misplaced Priorities

A clear case for consolidation among India's larger public sector banks is yet to be made. These banks have been improving their performance consequent to deregulation, thanks to an enhanced commercial orientation, greater autonomy and injection of market discipline. They need to focus now on human resource development issues, risk management and technological upgradation. A preoccupation with mergers at this stage is not only a distraction, it could derail the steady improvement in performance in the banking system over the past decade.

RBI Guidelines on Foreign Ownership in Banks

The RBI's draft guidelines on foreign ownership in Indian banks are actuated by an assessment of the relevance of foreign banks to the primary objectives of stability and efficiency in the domestic banking system. They reflect an appreciation of the improvement on these counts achieved by the Indian banking system in the post-reform era. Thus, an enlarged presence of foreign banks clearly appears to be undesirable at present.

Privatisation in China:Softly, Softly Does It

This paper examines China's record of privatisation to assess whether it accords with popular perceptions in India of that country having proceeded vigorously with such a programme. The record shows that China has moved cautiously in its privatisation efforts. It has privatised only the smaller state-owned enterprises, and the state retains control over the larger ones. Over a period, China has also pushed through reforms of SOEs, and the empirical evidence is that their performance has improved consequent to such reforms. It could be argued that fullblooded privatisation might have produced even better results. However, given the possible implications in terms of job losses as well as the absence of effective governance mechanisms in China's underdeveloped capital market, its rulers may well have been justified in hastening slowly with privatisation.

Comparing Performance of Public and Private Sector Banks

This paper attempts a comparison of performance among three categories of banks - public, private and foreign - using physical quantities of inputs and outputs, and comparing the revenue maximisation efficiency of banks during 1992-2000. The findings show that PSBs performed significantly better than private sector banks but no differently from foreign banks. The conclusion points to a convergence in performance between public and private sector banks in the post-reform era, using financial measures of performance.

Strategic Sale versus Public Offer: Dispelling Myths

The focus in India's privatisation efforts has shifted from disinvestment, the sale of minority shares to the public, to strategic sale where a controlling stake is sold to a private buyer. It is contended that strategic sale, by transferring control from government to a private owner, is best suited to the objective of improved efficiency. Because a process of bidding subject to a reserve price is involved, it will also help meet the objective of maximising government revenues through privatisation. This paper reviews these claims drawing on the findings of auction theory and the empirical evidence on methods of sale in privatisation worldwide. It also addresses popular misconceptions about the benefits of strategic sale. The auction literature suggests that strategic sale using the first-priced sealed-bid method currently employed cannot always be counted upon to maximise efficiency and revenues. The empirical evidence shows that share issue privatisation, the sale of government shares through a public offer, has been the preferred method of sale in privatisation carried out elsewhere.

A More Relaxed View of Fiscal Consolidation

The finance minister has sought to convey, however subtly, that we can live with the present level of the fiscal deficit without getting killed, meaning, we can still achieve a growth rate of around 6 per cent. If he does deliver growth in the coming year, economic agents will come to believe that he is right, India�s present fiscal deficit level will lose some of its terror and the economy could conceivably move to a virtuous spiral of higher growth and a lower debt to GDP ratio. In the process, Singh may well end up effecting a paradigm shift of sorts in fiscal policy.

Long-run Performance of Public and Private Sector Bank Stocks

This paper evaluates the performance of public sector banks (PSBs) consequent to disinvestment by comparing the returns to PSB stocks with returns to the Sensex. We do so on an unadjusted as well as risk-adjusted basis. We also compute the relative returns of private sector banks with respect to the Sensex and use these to compare public and private sector bank performance. We find that PSB stocks' performance on the average was not significantly different from that of the Sensex or from that of private sector bank stocks.

Why Big Sell-Offs Irk Politicians

Dare one suggest that politicians could have good reasons to be wary of big-ticket privatisation? With their instinctual understanding of the polity, they might have a better sense of the 'agency' problems inherent in privatisation than the cerebral types who are forever running them down.

Deregulation and Performance of Public Sector Banks

How have India's public sector banks (PSBs) performed in the years since bank deregulation was set in motion in 1992-93? The banking system has not collapsed nor has there been a banking crisis and the efficiency of the system as a whole measured by declining spreads has improved. This paper documents and evaluates the performance of PSBs since deregulation in absolute and relative terms and attempts to understand the factors underlying their improved performance.

Privatisation: Theory and Evidence

Privatisation is very much the flavour of the day. Many enthusiasts of privatisation seem to believe that a shift from public to private ownership will automatically make for improved performance. Yet there is little in economic theory or the empirical evidence on privatisation that lends support to such a simplistic belief. The evidence on the impact of privatisation is by no means unmixed. In particular, in less developed countries, where law enforcement and corporate governance tend to be weak, private ownership does not necessarily make for better performance. It is possible, based on the research on privatisation, to draw some tentative conclusions for privatisation policy in a context such as ours.

The Ecstasy and the Agony

The budget's strategy for stepping up growth in the near term rests on certain key premises: (i) fiscal consolidation is under way; (ii) fiscal consolidation and reduction in administered interest rates will lead to lower lending rates; and (iii) lower interest rates, along with continued deregulation, will make for higher investment and growth. Each of these premises needs to be carefully examined.


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