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

Banking RegulationSubscribe to Banking Regulation

Non-performing Assets in Indian Banks

Growing non-performing assets is a recurrent problem in the Indian banking sector. Over the past two decades, there have been two such episodes when the banking sector was severely impaired by balance sheet problems. A comparative analysis of two banking crisis episodes— one in the late 1990s, and another that started in the aftermath of the 2008 Global Financial Crisis and is yet to be resolved—is presented. Taking note of the macroeconomic and banking environment preceding these episodes, and the degree and nature of crises, policy responses undertaken are discussed. Policy lessons are explored with suggestions for measures to adapt to a future balance sheet-related crisis in the banking sector such that the impact on the real economy is minimal.

Concentration, Collusion and Corruption in India’s Banks

Why would companies, for whom costs rise with higher interest rates, choose to amass credit as interest rates rise? Were more and more loans taken with the understanding that default would be inevitable? Only a commission of inquiry with a specifi c mandate to understand the years of loose lending by banks in India can answer these and other uncomfortable questions. These answers are needed in the interest of securing our economy, and indeed our democracy.

‘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.

Banking on Universality

If universal banking is to work, we should have guidelines that are clear and manageable; and once the guidelines are in place, there should not be any concessions on a piecemeal basis.

Deposit Insurance for Cooperative Banks

This paper argues that cooperative banks face higher risk of failure than commercial banks, due to softer regulatory and supervisory arrangements, highly impaired capital and asset structure, inadequate corporate governance and lack of professionalism. Yet, these two sets of banks have been clubbed together in the same rights and capacity under a unified deposit insurance scheme. The Deposit Insurance and Credit Guarantee Corporation is making huge payments on account of failure of cooperative banks and this is threatening the viability of the deposit insurance system and thereby financial stability of the country. Though there are numerous problems in extending deposit insurance cover to cooperative banks even under a separate scheme, still there may be compulsions to do so. For the viability and effectiveness of the deposit insurance system for cooperative banks, it is essential that the deposit insurance system be set up within a prudential framework. However, such an arrangement may entail significant increase in the deposit insurance premium payable by cooperative banks.

Some Issues of Growth and Profitability in Indian Public Sector Banks

Public sector banks face a triple jeopardy. First, they are losing market share; second, their profitability is being seriously squeezed; and, third, their balance sheets are not strong and their sovereign support, which had buttressed them so far, is becoming open to question. The reasons for this less-than-enviable condition of the public sector banks are many, but a principal operative factor derives from the nature of their ownership and what that translates into in terms of goals and priorities.

Organisation of Regulatory Functions:A Single Regulator?

Since the beginning of the financial sector reforms in early 1990s, boundaries between products and intermediaries have been blurring rapidly. The entry of several large government-owned as well as non-governmental financial sector participants in a variety of related domains such as securities trading, investment banking, commercial and retail banking, insurance and asset management which are regulated by independent bodies has posed some unique supervisory challenges for the Indian financial system. The paper attempts to argue that such a system of regulation not only artificially fragments the financial markets but also exposes the system to the very real danger of participants behaving as mini-super-regulators as they seek to optimally allocate capital dynamically between these fragmented market

Why the Financial Sector Needs a Single Regulator

Why the Financial Sector Needs a Single Regulator S SUBRAMANYAN This piece is in response to the article by R H Patil (EPW, p 4255, November 10, 2001) on this subject. It is a comprehensive and interesting article. The issue of establishing an appropriate regulatory mechanism for India
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