02-25-2005, 05:22 AM
<!--QuoteBegin-->QUOTE<!--QuoteEBegin--><b>Autonomy blues</b>
The Pioneer Edit Desk
February 22, 2005, will be recalled for long as the day the UPA Government kept its tryst with the economic reforms programme. The announcement of unprecedented dozes of autonomy to public sector banks will give the sector its much needed operational freedom. The Government will not be required to monitor their day-to-day administration. They would now have the right to set up overseas branches and subsidiaries, withdraw from non-profitable ventures and even buy into other banks. New areas of business are now on their radar screens.
But functioning autonomy does not mean total independence from state interference on larger questions. There is ambiguity on whether the banks will be at liberty to take steps against defaulters, many of who are the biggest names in the Indian corporate world. Moreover, the distinction made between strong and weak banks suggests that the proposal to merge the unprofitable entities has been shelved. <b>The autonomy falls short of allowing them the leeway to develop their own strategies to meet RBI's lending targets for the agriculture sector. </b>
Contrary to the entrenched view that banks are reluctant to offer credit to farmers, they are actually inhibited by bureaucratic limits from lending up to the viable extent. The district technical committees are not receptive to the banks' views and tend to fix the lending limit at levels which satisfy nobody. According to a Planning Commission report of 2001, the scale of finances is not in alignment with the real requirement of farmers. As a result, the farmers are forced to run to money-lenders to raise the remainder of their requirements.
The plethora of ills still afflicting the banking sector will not go away with superficial tinkering. Every Government needs the public sector banks because they finance a large part of the deficit. This leads to the banks themselves needing dole-outs because their own deficits increase. This dilemma was sought to be attacked in 2000 by the NDA's finance minister, Mr Yashwant Sinha, by upholding in his Budget speech the recommendations of a banking reforms committee that the Government's stake be diluted from 51 per cent to 33 per cent. He even had the courage to pilot a Bill on this, but owing to the Congress-Left combine's intransigence, it had to be referred to the Standing Committee where it lapsed with the last Lok Sabha. Now, however, the Congress is waiting gingerly to see how the Left will permit it to carry out Mr Sinha's unfinished agenda.
The paper that Finance Minister Chidambaram circulated ahead of his recent meeting with bank chairmen carried a tantalising proposal-dilute stake or perish. If the aam admi has to be served, then precious funds cannot be locked up in banks anymore. At any rate, the RBI's supremacy as the central bank will prevail. The coming public offering by the Oriental Bank of Commerce promises to be the first battleground as it is speculated that the 51 per cent ceiling may be stretched. <b>Will the Left bite? Watch this space for more</b>.
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The Pioneer Edit Desk
February 22, 2005, will be recalled for long as the day the UPA Government kept its tryst with the economic reforms programme. The announcement of unprecedented dozes of autonomy to public sector banks will give the sector its much needed operational freedom. The Government will not be required to monitor their day-to-day administration. They would now have the right to set up overseas branches and subsidiaries, withdraw from non-profitable ventures and even buy into other banks. New areas of business are now on their radar screens.
But functioning autonomy does not mean total independence from state interference on larger questions. There is ambiguity on whether the banks will be at liberty to take steps against defaulters, many of who are the biggest names in the Indian corporate world. Moreover, the distinction made between strong and weak banks suggests that the proposal to merge the unprofitable entities has been shelved. <b>The autonomy falls short of allowing them the leeway to develop their own strategies to meet RBI's lending targets for the agriculture sector. </b>
Contrary to the entrenched view that banks are reluctant to offer credit to farmers, they are actually inhibited by bureaucratic limits from lending up to the viable extent. The district technical committees are not receptive to the banks' views and tend to fix the lending limit at levels which satisfy nobody. According to a Planning Commission report of 2001, the scale of finances is not in alignment with the real requirement of farmers. As a result, the farmers are forced to run to money-lenders to raise the remainder of their requirements.
The plethora of ills still afflicting the banking sector will not go away with superficial tinkering. Every Government needs the public sector banks because they finance a large part of the deficit. This leads to the banks themselves needing dole-outs because their own deficits increase. This dilemma was sought to be attacked in 2000 by the NDA's finance minister, Mr Yashwant Sinha, by upholding in his Budget speech the recommendations of a banking reforms committee that the Government's stake be diluted from 51 per cent to 33 per cent. He even had the courage to pilot a Bill on this, but owing to the Congress-Left combine's intransigence, it had to be referred to the Standing Committee where it lapsed with the last Lok Sabha. Now, however, the Congress is waiting gingerly to see how the Left will permit it to carry out Mr Sinha's unfinished agenda.
The paper that Finance Minister Chidambaram circulated ahead of his recent meeting with bank chairmen carried a tantalising proposal-dilute stake or perish. If the aam admi has to be served, then precious funds cannot be locked up in banks anymore. At any rate, the RBI's supremacy as the central bank will prevail. The coming public offering by the Oriental Bank of Commerce promises to be the first battleground as it is speculated that the 51 per cent ceiling may be stretched. <b>Will the Left bite? Watch this space for more</b>.
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