This article analyses why the progressive reforms in the public sector banks and the banking sector under the watchful eyes of the government could not bring the desired change in the working culture and governance of the PSBs. It highlights the reasons why PSBs lag behind and identifies future strategies that may help bring them back on the desired track.
Of late, banks are under pressure to improve their performance and asset quality. Diversifying income might improve their performance at a time when interest incomes are under strain. This article covers trends in diversification from 2000 to 2017 and explores the relationship between income diversification and risk-adjusted returns for banks in India. Our research supports the hypothesis that banks diversifying into non-interest income category are able to get higher risk-adjusted returns. For public sector banks, it is found that it is the dividend and treasury income that is contributing positively and significantly to risk-adjusted return.
Unlike common assumptions, private banks do not inherently perform better than public sector banks. The reasons that are often cited for privatisation of public sector banks require deeper scrutiny.
This article looks into the reasons for the large non-performing assets of the Indian banks, particularly public sector banks, and the various steps taken by the government and the Reserve Bank of India to tackle the issue of bad debts.
There is a buzz in the air about privatisation of some of the public sector banks (PSBs). There has been talk of privatising Industrial Development Bank of India (IDBI Bank) in financial year (FY) 2020–21.
The idea of “bail-in” in cases of serious banking instability has been widely discussed in India ever since the introduction of the Financial Resolution and Deposit Insurance Bill. Given the large non-performing loans of public sector banks, the Government of India and the Reserve Bank of India as the regulatory authority have to quickly act to ensure that public confidence in the soundness of commercial banks is not breached. In this context, three approaches are explored that could be adopted either individually or in a variety of combinations in different proportions essentially to secure banking stability. The bail-in idea should not be considered except in extreme conditions of large financial stress. The idea could be tried even before the extreme situation arises with provision of incentives.
