Why cannot the FIs take the initiative to create a market for corporate control to facilitate mergers and acquisitions?
The market for corporate control is still limited and very small. In India, the process by which corporate control shifts is not always smooth and is often time-consuming. All these factors generate additional risks. Therefore, the FIs should form views on a case-by-case basis by looking at the market for corporate control from their own shareholders' point of view. They should also take into account the relevant risks and prospective returns.

Is it necessary for the FIs to focus on fee-based services?
It is only to an extent that the falling interest rates can reduce the interest spread of FIs. And that too only for a while. Lower or higher interest rates do not necessarily mean lower spreads as the borrowing and resource costs also change as far as the FIs are concerned. More importantly, competition among FIs can also reduce the spread.

Management of spreads is the key part of management of FIs in a liberalised environment. This is an essential task in managing FIs' business, whether interest rates rise or fall. However, FIs can also have an increased share of income from other areas such as underwriting, guarantee, advisory and consultancy services, among other fee-based services.

Is it essential that FIs continue to play their role as development banks?
To a certain extent, FIs will always be development banks. For, the long-term viability and business growth of FIs also depend partly on their own initiatives in providing innovative investment banking and advisory services tailored to meet the emerging resource and contingent funding requirements of industry, infrastructure, agriculture and service sectors.

The role relevant to FIs now is this: anticipating opportunities of intermediation and advisory business in a dynamic competitive economy rather than being an instrument of channelising financial resources at subsidised interest rates to specified sectors, areas and entrepreneurial classes. In the new environment, the FIs need to recognise the signals that are emanating from the domestic and international marketplace. Thus, they can indicate impact of these signals on their growth development and on the economic development of the country.

Where do you see IIBI five years down the line?
IIBI is now only three years old. It has miles to go. IIBI has lot of opportunities for developing its capabilities within a short period of time and plenty of potential in exploiting expansion and diversification avenues. Five years down the line, I see IIBI acquiring a position of respect in the financial sector with a decent share of business across a diversified range of financial market segments. IDBI will carve out a niche in the Eastern region within that timeframe.

Should FIs be given autonomy?
Certainly yes. Some of the FIs enjoy considerable degree of autonomy already.

What factors guide the FIs in corporate mergers and acquisitions?
Generally, FIs do not have controlling stakes in companies. In some cases, FIs have controlling stakes along with the investment institutions. To the extent the FIs are shareholders, their desitions are guided by their own assessment of the impact such mergers and acquisitions would have on their investments and exposure.

Do FIs have a free hand to change the non-performing management of those companies where they have controlling stakes?
In most cases, changing management of companies is not an easy process, specially where companies have failed to do well. As the corporate governance process improves in the country, it would be difficult for existing managements not to give up their jobs once they fail to deliver value to the shareholders over successive years.

Are lending policies of FIs changing?
Yes, lending policy of FIs are changing in response to changes in the market place. The financial sector reforms as well as the changing dynamics of liberalisation do have an impact on the lending and investment policies of FIs.

What will be the role of FIs in the liberalised environment?
In the liberalised environment, the role of FIs has already changed. Earlier, the FIs were instruments for directing savings and resource flows to those sectors which were accorded priority in the Five Year Plans at subsidised interest rates. The resource flows from the banking system to the FIs ensured a system of allocation by the RBI and the Government of India.