|
: The issue of consolidation in the banking sector, particularly in the context of public sector banks, has cropped up once again, with reported differences emerging between the PM’s honorary economic advisor, Raghuram Rajan, and the finance ministry. Rajan, in a letter to the PM, has advised the government against driving consolidation in the banking sector because the difficulties associated with the consolidation of banks are often under-estimated. He says that any final decision should be left to individual bank boards. Earlier, Rajan, as chairman of a committee on financial sector reforms, had supported the consolidation of banks as long as it did not kill competition and increase concentration. The finance minister, on the other hand, wants a push towards consolidation. In a way, both the finance minister and Rajan have valid points. The finance minister is right in arguing that consolidation among public sector banks will help strengthen and improve their efficiency. If Indian banks are to be globally competitive, scaling up is an essential requirement. So, consolidation should not be opposed on principle. However, Rajan is right in insisting that bank boards should take the final call. The government should certainly not interfere with their decision, whether in favour of or against consolidation. SBI has ironically been trying to acquire a number of subsidiaries, but has faced objections from the government.
The real differences between Raghuram Rajan and the finance ministry are probably not on consolidation in banking—there is quite a lot in common on this particular issue. The real differences are on the numerous reforms of the financial sector that the Raghuram Rajan Committee had suggested and which the finance ministry and RBI now want to put on the backburner. The government and RBI seem to have all but rejected the idea of an inflation-targeting central bank. For the moment, there is no appetite for reducing government shareholding in banks to below 50%. There seems no inclination to further liberalise government securities and corporate bonds to foreign institutional investments. Obviously, there has been a dramatic change in the global context since the Rajan Committee submitted its report. The global consensus seems inclined to caution on finance. However, it would be a grave mistake for the government and RBI to completely reject the recommendations made by the Rajan Committee. Finance in India is so underdeveloped that we don’t have to worry about a Western style crisis for a while longer....
More from Edit & Column
| Single Page Format | 1 - 2 - Next |
Discuss this story on expressindia forums
|
|
 |
 |
 |
About Us | Contact Us | Advertisers | Site Map | Make us your homepage | Work for Us | RSS | Subscribe | Electronic Edition | Privacy Policy© 2010: The Indian Express Limited. All rights reserved throughout the world
