ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Articles by T T Ram MohanSubscribe to T T Ram Mohan

Western Banks in Turmoil Once Again

There is turmoil in banking in the United States (US) and Europe. It has taken the world by surprise. Banks were supposed to have become much safer following the regulations put in place after the Global Financial Crisis (GFC) of 2007–08.

Bank Privatisation Is Not Easily Accomplished

Those who urge the wholesale privatisation of public sector banks do not seem to have given adequate thought to the mechanics of bank privatisation in India. Given the present regulatory regime for private bank ownership in India, there are formidable obstacles to privatising even what is regarded as an obvious candidate for privatisation—the IDBI Bank. The challenges in privatising several PSBs must not be understated.

Banking Sector Resilient in the Face of Pandemic

Contrary to several gloomy forecasts, the Indian banking sector has been surprisingly resilient in the face of the pandemic. This is because corporates, which account more than half the loans, are in better shape and banks are well-capitalised. This bodes well for loan growth and bank performance post the pandemic.

 

Bank Privatisation

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.

RBI Moves to Shake Up Governance at Banks

The Reserve Bank of India’s discussion paper on “Governance in Commercial Banks in India” is refreshing in that it takes an approach to governance that is ownership-neutral. This shows a recognition that there are governance issues at private banks, not just at public sector banks. The significant proposal is distancing of four key functions at banks from the chief executive officer. The RBI may benefit from incorporating radical proposals made in other places such as the United Kingdom.

Reining in Bankers’ Pay

The Reserve Bank of India’s guidelines on compensation for top management of banks are more generous in respect of variable pay than those of the European Union. However, they are a step forward in that they address an important lacuna in the existing guidelines: the non-inclusion of stock options in variable pay. The guidelines should serve to set a cap on the total compensation payable to bankers. As important are the disclosures in respect of top management compensation that the guidelines mandate.

IL&FS Was an Avoidable Crisis

The infrastructure Leasing and Financial Services Limited, a systemically important non-banking financial company, has defaulted on its debt repayments. This has created turmoil in the NBFC sector and in the financial markets. Many analysts allege serious malpractices and fraud at IL&FS. Whatever the truth of these allegations, the fundamental problem at IL&FS was that of illiquidity arising from the use of short-term funds to finance infrastructure. The failure to address illiquidity early enough has pushed the company towards bankruptcy.

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