Banks
Content
Today's Paper Archives Subscriptions RSS Feeds Site Map ePaper Mobile Social SEARCH
Home News Opinion Business Sport S & T Features Books In-depth Jobs Classifieds Shopping Blogs Cartoon Columns Editorial Interview Lead Letters Op-Ed Open Page Readers' Editor Views Unlimited
Opinion » Columns » Chandrasekhar
June 20, 2013
How private are public banks?
34% Off Books at Indigo - Summer Book Savings at Chapters Indigo. Free Shipping over $25! Chapters.Indigo.ca/Summer-Reading Ads by Google C. P. Chandrasekhar Share · Comment (7) · print · T+
Private shareholding ratio in Public Sector Banks TOPICS
economy (general)
Economy Watch (column)
financial and business service banking
14 out of 26 public sector banks had private shareholding in the 40-49 per cent range by end-March 2012.
July 1, when the Reserve Bank of India entertains applications for the third round of private entry into banking, marks the beginning of one more phase in banking liberalisation in India. Central to that liberalisation was the reversal of the post-1969 policy in which banking was made a largely public preserve by the nationalisation of the major private banks. Till then, India’s major banks, other than the State Bank of India and its subsidiaries, were directly or indirectly controlled by big business, resulting in the capture of a dominant share of the nation’s savings by large firms to the exclusion of small borrowers and the agricultural sector. Seizing the ownership of these banks and bringing them into the public sector established social control. Some private banks remained, but they were small domestic ones or foreign players with restricted operations. In the two decades that followed, India’s banking sector, judged by behaviour or social performance indicators, went through a dramatic transformation. The period since 1993 has, however, seen the slow reversal of that policy, not merely through the grant of greater space for foreign banks in India, but through the grant of licences to 12 private players after two calls for applications. But the current third round call for private entry is significant not merely because it carries the process forward but because it allows for entry by domestic corporates in the form of entities and groups in the private sector that are “owned and controlled by residents”. This has, as is to be expected, triggered speculation on the future of Indian banking. However, while change at the margin in terms of new private entrants has made a difference, the essential character of the Indian banking sector seems largely influenced by the legacy that nationalisation left. Public vs. Private Though some lament the fact that public ownership stalls innovation and adversely affects customer service, India’s record relative to countries that were badly affected by tendencies that precipitated the 2008 financial crisis showed that public ownership has many other benefits. Public ownership subordinates the profit principle to other development goals, influences the behaviour of bank managers trained as public servants not to succumb to the lure of quick profit, and sets up strong forces within public banking that resist a return to corporate dominance. The
result is a more stable and inclusive banking sector. Creeping privatisation through new entry can alter the façade, many argue, but the foundations remain those put in place by nationalisation. The difficulty with this argument is that it ignores a development that has received far less attention than it deserves, which is the dilution of public ownership in the nationalised and stateowned banking sector. Besides private entry, an important component of the transformation of banking engineered by liberalisation was a restructuring of public sector bank ownership. Reasons given to justify that move were varied. One argument was that private equity ownership would introduce new monitors into the system, and the signals sent by share prices influenced by shareholder preferences would help improve corporate governance in banking. Another was that dilution of a part of equity, subject to public ownership remaining at 51 per cent or more, would help mobilise the resources needed to recapitalise banks and meet the conditions set by prudential rules such as those implicit in the capital adequacy ratios specified under Basel norms. This meant that it was not just weak public sector banks that were made candidates for equity dilution. Early in the liberalisation era, in December 1993, the State Bank of India, with paid up capital of Rs. 200 crore chose to go in for a public issue of shares worth Rs. 274 crore at par, but sold at a premium of Rs. 90 per share. In the event after the issue the shareholding of the Reserve Bank of India and the Government of India (together) came down to 66.3 per cent, with the remaining 43.7 per cent being held by other entities. That was only the beginning. As the accompanying chart shows, out of 26 public sector banks (including the 19 nationalised banks, the State bank group and IDBI Bank), as many as half that number had no private shareholding even as late as 2002, and only 2 had private shareholding in the maximum possible 40-49 per cent range. But in the decade that followed dilution has been rapid, so much so that as many as 14 banks had private shareholding in the 40-49 per cent range by end-March 2012. Another 10 fell in the 20-40 per cent private shareholding range. Private holdings include foreign ownership of equity in 24 out of the 26, with the extent of such ownership varying from 0.1 per cent (State Bank of Mysore) to 17.4 per cent (Punjab National Bank) as at end-March 2012. As a result, public banks increasingly accommodate the interests of their private shareholders. Even chiefs of the venerable State Bank of India have uncharacteristically protested against the RBI’s call for an end to risky “teaser loans” for housing, or against the central bank imposing (a much lowered) cash-reserve ratio on banks as a monetary policy instrument. Banks must be allowed to pursue profit at the expense of all else is the view they seem to hold. This suggests that in terms of equity ownership and business behaviour, India’s public banking system is only a short step away from coming under private control, though that would require the revision of the principle mandating at least 51 per cent government ownership of equity in public sector banks. If such a change comes about it would have a far greater transformative effect on Indian banking than would the entry of new private banks at the margin. So while the response to and after effects of the third call for bank licences from the private sector is a matter for concern, the real danger may be the creeping trend towards denationalisation which would completely erode the many benefits that public banking delivered.
Keywords: Economy Watch, new bank licence, PSU banks, nationalised banks, privatised banks, banking liberalisation, private shareholders More In: Chandrasekhar | Columns | Business | Economy | Economy Watch Ads by Google LIC Life Insurance Plans Invest Rs.543/Month & Get Rs. 1 Cr. Life Cover+Medical Benefit. Buy Now LIC.TermInsuranceIndia.co.in EFile income tax easily Enter Form 16 details, file online Filing fees only Rs 99/-. Try Now ! HRBlock.in/DoItYourself-TaxFiling Comments(7) Recommended(1) Post a comment
Public Sector Banks are as good if not better when compared to Private Sector banks like Icici Bank, which is figuring in most of the frauds committed by triksters on public. Most of the private sector banks employ people with no background in Banking or commerce and the level of knowledge at the counter is deplorable. Private sector banks also do not adhere to government guidelines issued to them and ignore many safety aspects which are needed to protect the depositors'interests. They cater to only the rich high net worth depositors and unscrupulous traders and industry who have support of the political class.The private banks, especially the new genaration banks have been found to be playing a major part in helping the taxevaders by opening accounts with out adhereing to KYC norms, again with the confidence they enjoy with the political class, especially the ruling political class. Private Banks are not designed for helping the middile class or poor and are for the rich as safe haven from: Prem Kumar CP Posted on: Jun 22, 2013 at 10:29 IST I feel there is a basic misunderstanding in the notion of Private ownership in the article. The article sounds like equating the public shareholding of equities to the private ownership of entities by a person or a group of persons. The reduction in government shareholding is because of the public investment rather than private takeover. from: Saravanakumar Posted on: Jun 21, 2013 at 22:11 IST Now Private Bank & tax haven bank will not effect global Economy after G-8 submits economics reforms. Every Tax haven Bank & Private Bank will deduct 10% on total Black money amounts & will deposit it into respective country"s Public Accounts. If Tax haven &
Private bank will not deduct 10% & will not refunds to respective country . Every country representative are in United Nation. Sign International treaty there in the eyes of United Nation and will ask the details of Black money A/C holders Every country Representative will impose 20% Penalty on tax haven countries & Private Bank & USA is the only country in world who recovers their Black Money from tax haven countries & USA supreme court has imposed penalty on tax haven bank How tax haven bank can hold USA black money ? Only in India supreme court of India can impose penalty on tax haven countries how tax haven bank can hold India black money Its a double tax system from: Daljeet Singh Posted on: Jun 21, 2013 at 12:04 IST Private ownership leading to more quality is a myth. Private banks lags behind nationalised banks in the quality of the service they provide. Their customer policies are not straightforward and lacks transparency from: sandeep vr Posted on: Jun 21, 2013 at 09:50 IST Privatization of 'public sector' banks would get better service for the public. My 'public sector' bank 'opens' at 10.30am and 'closes' at 2.30pm, 3 working hours available for clients whereas some private banks work from 8am to 8pm, 11 working hours available for clients. Quality of service is also different. Public sector banks don't give good service to customer well(they will get their salary + perks no matter what) whereas private banks treat the clients well, providing prompt, efficient service as quickly as possible. If all of them are 'owned' by the Government of India, why should there be so many banks, more or less competing with each other? Why not have one bank so that resources can be better spent to serve more clients? from: Leo Posted on: Jun 21, 2013 at 07:58 IST Show all comments
Columnists Listing
c. r. l. narasimhan c. p. chandrasekhar makarand waingankar harsh mander l. subramanian vasundhara chauhan Ads by Google
Ads by Google
Today's Paper ePaper This Day That Age Crossword Archives Obituary
Group Sites
The Hindu Business Line Sportstar Frontline The Hindu Centre Images
close Recent Article in Chandrasekhar
A long view of the rupee
The rupee is at a historic low of 58.2-to-the dollar, having been subject to a sharp 7.5 per cent nominal depreciation since early May. G... »
The Hindu: Home | News | Opinion | Business | Sport | S & T | Features | Books | In-depth | Jobs | Classifieds | Shopping | The Site: | About Us | Terms of Use | Privacy Policy | Contacts | Archives | Subscriptions | RSS Feeds | Site Map Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu Centre | Publications | eBooks | Images | Classifieds | Comments to: [email protected] Copyright© 2013, The Hindu
Home News Opinion Business Sport S & T Features Books In-depth Jobs Classifieds Shopping Blogs Cartoon Columns Editorial Interview Lead Letters Op-Ed Open Page Readers' Editor Views Unlimited
Opinion » Columns » Chandrasekhar
June 20, 2013
How private are public banks?
34% Off Books at Indigo - Summer Book Savings at Chapters Indigo. Free Shipping over $25! Chapters.Indigo.ca/Summer-Reading Ads by Google C. P. Chandrasekhar Share · Comment (7) · print · T+
Private shareholding ratio in Public Sector Banks TOPICS
economy (general)
Economy Watch (column)
financial and business service banking
14 out of 26 public sector banks had private shareholding in the 40-49 per cent range by end-March 2012.
July 1, when the Reserve Bank of India entertains applications for the third round of private entry into banking, marks the beginning of one more phase in banking liberalisation in India. Central to that liberalisation was the reversal of the post-1969 policy in which banking was made a largely public preserve by the nationalisation of the major private banks. Till then, India’s major banks, other than the State Bank of India and its subsidiaries, were directly or indirectly controlled by big business, resulting in the capture of a dominant share of the nation’s savings by large firms to the exclusion of small borrowers and the agricultural sector. Seizing the ownership of these banks and bringing them into the public sector established social control. Some private banks remained, but they were small domestic ones or foreign players with restricted operations. In the two decades that followed, India’s banking sector, judged by behaviour or social performance indicators, went through a dramatic transformation. The period since 1993 has, however, seen the slow reversal of that policy, not merely through the grant of greater space for foreign banks in India, but through the grant of licences to 12 private players after two calls for applications. But the current third round call for private entry is significant not merely because it carries the process forward but because it allows for entry by domestic corporates in the form of entities and groups in the private sector that are “owned and controlled by residents”. This has, as is to be expected, triggered speculation on the future of Indian banking. However, while change at the margin in terms of new private entrants has made a difference, the essential character of the Indian banking sector seems largely influenced by the legacy that nationalisation left. Public vs. Private Though some lament the fact that public ownership stalls innovation and adversely affects customer service, India’s record relative to countries that were badly affected by tendencies that precipitated the 2008 financial crisis showed that public ownership has many other benefits. Public ownership subordinates the profit principle to other development goals, influences the behaviour of bank managers trained as public servants not to succumb to the lure of quick profit, and sets up strong forces within public banking that resist a return to corporate dominance. The
result is a more stable and inclusive banking sector. Creeping privatisation through new entry can alter the façade, many argue, but the foundations remain those put in place by nationalisation. The difficulty with this argument is that it ignores a development that has received far less attention than it deserves, which is the dilution of public ownership in the nationalised and stateowned banking sector. Besides private entry, an important component of the transformation of banking engineered by liberalisation was a restructuring of public sector bank ownership. Reasons given to justify that move were varied. One argument was that private equity ownership would introduce new monitors into the system, and the signals sent by share prices influenced by shareholder preferences would help improve corporate governance in banking. Another was that dilution of a part of equity, subject to public ownership remaining at 51 per cent or more, would help mobilise the resources needed to recapitalise banks and meet the conditions set by prudential rules such as those implicit in the capital adequacy ratios specified under Basel norms. This meant that it was not just weak public sector banks that were made candidates for equity dilution. Early in the liberalisation era, in December 1993, the State Bank of India, with paid up capital of Rs. 200 crore chose to go in for a public issue of shares worth Rs. 274 crore at par, but sold at a premium of Rs. 90 per share. In the event after the issue the shareholding of the Reserve Bank of India and the Government of India (together) came down to 66.3 per cent, with the remaining 43.7 per cent being held by other entities. That was only the beginning. As the accompanying chart shows, out of 26 public sector banks (including the 19 nationalised banks, the State bank group and IDBI Bank), as many as half that number had no private shareholding even as late as 2002, and only 2 had private shareholding in the maximum possible 40-49 per cent range. But in the decade that followed dilution has been rapid, so much so that as many as 14 banks had private shareholding in the 40-49 per cent range by end-March 2012. Another 10 fell in the 20-40 per cent private shareholding range. Private holdings include foreign ownership of equity in 24 out of the 26, with the extent of such ownership varying from 0.1 per cent (State Bank of Mysore) to 17.4 per cent (Punjab National Bank) as at end-March 2012. As a result, public banks increasingly accommodate the interests of their private shareholders. Even chiefs of the venerable State Bank of India have uncharacteristically protested against the RBI’s call for an end to risky “teaser loans” for housing, or against the central bank imposing (a much lowered) cash-reserve ratio on banks as a monetary policy instrument. Banks must be allowed to pursue profit at the expense of all else is the view they seem to hold. This suggests that in terms of equity ownership and business behaviour, India’s public banking system is only a short step away from coming under private control, though that would require the revision of the principle mandating at least 51 per cent government ownership of equity in public sector banks. If such a change comes about it would have a far greater transformative effect on Indian banking than would the entry of new private banks at the margin. So while the response to and after effects of the third call for bank licences from the private sector is a matter for concern, the real danger may be the creeping trend towards denationalisation which would completely erode the many benefits that public banking delivered.
Keywords: Economy Watch, new bank licence, PSU banks, nationalised banks, privatised banks, banking liberalisation, private shareholders More In: Chandrasekhar | Columns | Business | Economy | Economy Watch Ads by Google LIC Life Insurance Plans Invest Rs.543/Month & Get Rs. 1 Cr. Life Cover+Medical Benefit. Buy Now LIC.TermInsuranceIndia.co.in EFile income tax easily Enter Form 16 details, file online Filing fees only Rs 99/-. Try Now ! HRBlock.in/DoItYourself-TaxFiling Comments(7) Recommended(1) Post a comment
Public Sector Banks are as good if not better when compared to Private Sector banks like Icici Bank, which is figuring in most of the frauds committed by triksters on public. Most of the private sector banks employ people with no background in Banking or commerce and the level of knowledge at the counter is deplorable. Private sector banks also do not adhere to government guidelines issued to them and ignore many safety aspects which are needed to protect the depositors'interests. They cater to only the rich high net worth depositors and unscrupulous traders and industry who have support of the political class.The private banks, especially the new genaration banks have been found to be playing a major part in helping the taxevaders by opening accounts with out adhereing to KYC norms, again with the confidence they enjoy with the political class, especially the ruling political class. Private Banks are not designed for helping the middile class or poor and are for the rich as safe haven from: Prem Kumar CP Posted on: Jun 22, 2013 at 10:29 IST I feel there is a basic misunderstanding in the notion of Private ownership in the article. The article sounds like equating the public shareholding of equities to the private ownership of entities by a person or a group of persons. The reduction in government shareholding is because of the public investment rather than private takeover. from: Saravanakumar Posted on: Jun 21, 2013 at 22:11 IST Now Private Bank & tax haven bank will not effect global Economy after G-8 submits economics reforms. Every Tax haven Bank & Private Bank will deduct 10% on total Black money amounts & will deposit it into respective country"s Public Accounts. If Tax haven &
Private bank will not deduct 10% & will not refunds to respective country . Every country representative are in United Nation. Sign International treaty there in the eyes of United Nation and will ask the details of Black money A/C holders Every country Representative will impose 20% Penalty on tax haven countries & Private Bank & USA is the only country in world who recovers their Black Money from tax haven countries & USA supreme court has imposed penalty on tax haven bank How tax haven bank can hold USA black money ? Only in India supreme court of India can impose penalty on tax haven countries how tax haven bank can hold India black money Its a double tax system from: Daljeet Singh Posted on: Jun 21, 2013 at 12:04 IST Private ownership leading to more quality is a myth. Private banks lags behind nationalised banks in the quality of the service they provide. Their customer policies are not straightforward and lacks transparency from: sandeep vr Posted on: Jun 21, 2013 at 09:50 IST Privatization of 'public sector' banks would get better service for the public. My 'public sector' bank 'opens' at 10.30am and 'closes' at 2.30pm, 3 working hours available for clients whereas some private banks work from 8am to 8pm, 11 working hours available for clients. Quality of service is also different. Public sector banks don't give good service to customer well(they will get their salary + perks no matter what) whereas private banks treat the clients well, providing prompt, efficient service as quickly as possible. If all of them are 'owned' by the Government of India, why should there be so many banks, more or less competing with each other? Why not have one bank so that resources can be better spent to serve more clients? from: Leo Posted on: Jun 21, 2013 at 07:58 IST Show all comments
Columnists Listing
c. r. l. narasimhan c. p. chandrasekhar makarand waingankar harsh mander l. subramanian vasundhara chauhan Ads by Google
Ads by Google
Today's Paper ePaper This Day That Age Crossword Archives Obituary
Group Sites
The Hindu Business Line Sportstar Frontline The Hindu Centre Images
close Recent Article in Chandrasekhar
A long view of the rupee
The rupee is at a historic low of 58.2-to-the dollar, having been subject to a sharp 7.5 per cent nominal depreciation since early May. G... »
The Hindu: Home | News | Opinion | Business | Sport | S & T | Features | Books | In-depth | Jobs | Classifieds | Shopping | The Site: | About Us | Terms of Use | Privacy Policy | Contacts | Archives | Subscriptions | RSS Feeds | Site Map Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu Centre | Publications | eBooks | Images | Classifieds | Comments to: [email protected] Copyright© 2013, The Hindu
