Financial Daily from THE HINDU group of publications
Wednesday, Jul 28, 2004
Financial Daily from THE HINDU group of publications Wednesday, Jul 28, 2004 |
||
|
|
||
|
Money & Banking
-
Insight Columns - Financial Scan Banking licence, the original sin S. Balakrishnan
Another bank crash, another moratorium, another merger with a public sector bank. It has all become very predictable. One can well empathise with the Reserve Bank of India. Allowing the private sector to start banks was acclaimed with much fanfare by the votaries of liberalisation. With their service and technology, Indian banking would be revolutionised, went the argument. The slothful and slow-footed Government banks would also be forced to modernise. But, contrary to all expectations, it is the RBI and guinea pigs of public sector banks, which are picking up the pieces. Other than those with strong parent institutions, such as the UTI (100 per cent Government-owned) and HDFC, the new generation banks have, in general, been utter failures. Few on these banks' boards seem to understand and realise that the standards of corporate governance and professional management in a bank ought to be much higher than in non-bank institutions. The grant of a banking licence is an extremely critical decision in which the background of those behind a bank is of paramount importance. At least some officials in the RBI must have been aware of the dubious methods used to raise capital for the new bank. It is also all but certain that these would have been brought to the notice of the top brass of the central bank , which, left to itself, is unlikely to have allowed the chief promoter of the Global Trust Bank, Mr Ramesh Gelli, to start a bank. Obviously, political pressure was brought to give him a banking licence. (It must be said, to Mr Gelli's credit, that he was able to charm respectable institutions like the International Finance Corporation — an arm of the World Bank — as well as several other foreign investors to buy into his bank. But they soon realised their folly and exited their investments leaving Indian shareholders holding the empty bag). The bank was doomed from the start. The only surprise is that the final denouement took so long. It is well known that for several years now, for most banks, GTB has not been an acceptable counterparty in the money market. The Government and the RBI are, of course, right to make sure that GTB's depositors get their money back. Otherwise, the confidence of the public in private sector banks would completely disappear and it would be curtains for them. It is the price the Government and public have to pay to keep the system going. That it is a classic moral hazard situation — of which we have so many in our country — is a different issue. Coming to think of it, the old-generation private sector banks, long derided for being behind the times, have managed to survive for decades and even grow in the new milieu, while most of the new generation banks have had to seek mergers, buyouts and capital infusion no sooner than they began. New generation banking is obviously more than mere batteries of servers, computers and ATMs.
More Stories on : Insight | Private Banks | Financial Scan
Article E-Mail :: Comment :: Syndication :: Printer Friendly Page
|
Stories in this Section |
|
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |
Copyright © 2004, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line
|