Public
Sector Banks
Star
Performers: Corporation Bank --Katuri Nageswara Rao
Corporation
Bank deserves the tag of a star performer among the
nationalized banks, thanks to its superior accomplishments
during the recent past. In fact, its level of NPAs,
profitability, business per employee, profit per employee,
capital base and capital adequacy ratio are much better
than those for most of the private sector banks. Nationalized
in the second round during 1980, its strategic alliance
with LIC and New India Assurance Co. Ltd. have been
hailed as fairly successful. It has an efficient collection-payment
service and specializes in extending credit to blue
chip corporates. Of late, it has been concentrating
on retail credit segment in a big way.
©IUP. All Rights Reserved.
Star
Performers: Oriental Bank of Commerce -- IRT
Oriental
Bank of Commerce, nationalized in the second round in
the year 1980, has been performing remarkably well during
recent times. It has a very low level of NPAs, high
staff productivity and substantial capital base. It
has been concentrating on expansion of retail credit
of late.
©IUP. All Rights Reserved.
Star
Performers: Andhra Bank --IRT
Andhra
Bank is one of the six banks that was nationalized during
the second round in 1980. It is a mid-sized bank with
a total business mix of over Rs. 28,000 cr. It has been
performing creditably during the last two years. Its
level of NPAs is one of the lowest in the banking sector.
Its capital base, cost of funds and staff productivity
have significantly improved.
Its
regional rural banks are not a big drag on the parent
and its two subsidiaries are low key players. However,
it is yet to convert its credit card business into a
profitable proposition.
©IUP. All Rights Reserved.
Banking
Scenario
WTO
Requirements and Indian Banking --
Dr. A Besant C R
While
liberalization and banking sector reforms have paved
way for competitiveness amongst banks, the GATT provisions
raise the question of consolidation among Indian banks
so as to face the challenges from very big foreign banks
which are expected to enter India without hindrance
from the year 2005 onwards. Even the biggest bank like
State Bank of India will find the competition tough.
There is a need for Indian banks to augment the range
of services and equity base, liberalize credit decision
mechanism besides improving operational efficiency in
other areas.a
© IUP. All Rights Reserved.
Strategic
Banking
Asset
Management Companies : Will they Survive? --Yash
Paul Pahuja
To
address the banking system's Non-Performing Loan (NPL)
problem, the Chinese Government has set up four Asset
Management Corporations (AMCs). They were to buy up
bad debts of the big four state-owned commercial banks
and dispose them off over 10 years, taking a large step
towards NPL resolution. But in their first two years,
these AMCs have made only a limited contribution to
resolution of the NPL problem. They have taken over
less than half of the NPLs at the big four banks. In
addition, while AMC financing has been less than transparent,
it appears to have burdened the People's Bank of China
(PBoC) with greater risks to date than the Ministry
of Finance (MoF), although there have not been any evident
monetary consequences. Under plausible recovery scenarios,
the AMC losses would surpass the current financial contributions
to the AMCs from both the MoF and the PBoC. Since their
cash recoveries have lagged their interest obligations,
the AMCs face rising cash flow pressure. In response,
the Government is pushing for speedier asset recovery,
as is evident in the milestone of the first international
NPL auction.
©IUP. All Rights Reserved.
ICICI,
ICICI Bank Merger --
Dr. Y G Sivaram and Prakash Bhattacharya
The
major objective behind the merger between ICICI and
ICICI Bank was to get synergy in the form of lower cost
of funds. The merger makes the bank, second largest
in India only after the State Bank of India. Now after
the merger the bank is trying to provide almost all
financial services to its customers under one roof.
Analysts feel that the new entity has all the positive
attributes of a big, bold and competitive financial
intermediary; a tech savvy platform, an array of products,
a strong retail base and a good corporate banking background.
But different regulators for different services may
create some problems for the ICICI Bank. The higher
NPAs after the merger is also one of the biggest negative
factors for the bank.
©IUP. All Rights Reserved.
Banking
in Asia: Road to Recovery -- Tom Hollan
At
the time of Asian crisis, five years ago financial pundits
had predicted that it would take a decade for the Asian
banking industry to recover and due to lack of capital
that is required for financing healthy growth, Asia
would subside into economic stagnation. Exactly after
five years, a lot of reforms are taking place and banking
industry is recovering gradually. This proves that pessimists
were only half-right.
To
solve the bad debt problem, Taiwan and Philippines have
established the Asset Management Company. Korea is restructuring
its banking system at brisk pace. Today Korea's bad
loans are just 3% against 13% in 1999. Though the bad
loans of Japan and China are around 40% and 50% of outstanding
loans respectively; reform
©Far
Eastern Economic Review, October 3, 2002. Reprinted
with permission. Originally published as "Banking
in Asia: Restructuring".
Monetary
Management
Solving
the Debt Crisis -- Guillermo Ortiz
Industrialized
countries and multilateral lending institutions know
that current situation on debt crisis is looming large
and present system is not able to solve the problem,
but they are undecided as to what to do. The new architecture
is still evolving. The current debate is focusing on
two extremes of the emerging market crisis: First is
pure liquidity situation, where there is short-term
need for the money; Second, pure solvency problems,
where a government is essentially bankrupt. Today's
changing and volatile global financial environment is
posing greater threat and to tackle these crises, countries
may need more resources than those IMF is providing
under present agreement. To achieve this, IMF should
be restructured.
IMF
and G 7 countries could play more important role in
the evolution of new financial architecture to get rid
of the present perilous architecture. If the successful
transition would not happen, severe problems could envelop
in the global financial market.
©Business
Standard, September 25, 2002. Reprinted with permission.
International
Banking
European
Financial Integration and Stability -- Eugenio
Domingo Solan
The
introduction of the euro has changed the terms of reference
on which an appropriate solution for the best framework
for banking regulation and supervision and financial
stability at the euro-area level is to be found. The
ongoing integration and consolidation of the European
financial systems clarify the need for much closer co-operation
among national regulators and supervisors.
As
a part of the financial system, the euro-area banking
industry has also begun to experience a process of integration
and consolidation, which could be more intense were
it not for the lack of better legal harmonization and
some remaining projectionist attitudes.s
©
European Central Bank. Reprinted with permission.
Economy
Export
Policy : In Need of a Re(look) -- George
Cheria
The
recently announced medium-term export policy envisages
continued depreciation of the rupee and increased share
of India's world trade to 1% from the present 0.67%.
In real terms rupee would have in fact appreciated during
the recent period against the dollar consequent to the
fall in dollar value among other things. However, it
is RBI's intervention that kept the rupee at present
level. While a weak rupee keeps exporters happy, it
has not really helped growth in exports.
For
Indian exports to pick-up, infrastructure bottlenecks
like inefficient ports and inadequate water and power
besides poor quality of goods have to be addressed.
Incidentally, the recent strength in rupee is attributable
to huge NRI remittances and sizeable FDI inflow besides
a very comfortable external debt position and external
reserve position.n
©
The Economic Times, September 25, 2002. Reprinted with
permission.
Financial
Institutions
Development
Financial Institutions : Is Endgame in Sight?
-- Sanjiv
Shankaran
The
main problems, today, faced by IDBI and IFCI are larger
Non-Performing Assets (NPAs), higher cost of funds and
unfavorable business environment. As on March 31, 2002,
IDBI and IFCI have 11.7% and 22.1% of assets as NPAs
respectively. According to the author, the ultimate
solution to problems is to convert these financial institutions
into universal banks, where they can access lower cost
of funds. IDBI is in a better position than IFCI and
could face fewer problems while merging with another
bank. But the financial position of IFCI is at an alarming
stage and the capital adequacy ratio of the bank is
around 3% against the minimum required 9%. The consultant
appointed by IFCI has given proposal to segregate the
good assets that could eventually be merged with a potential
universal bank and for transfer of its NPAs to an asset
reconstruction company. These measures need a strong
political will.
©
Business Line, September 22, 2002. Reprinted with permission.
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