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Frenzy and Debate over a RBI Internal Working Group report: Governance, not ownership, is key

Summary:
On 20-Nov-2020 RBI released a report of the “Internal Working Group to Review Extant Ownership Guidelines and Corporate Structure for Indian Private Sector Banks”. Who would have imagined such a heavy worded report to create such a frenzy and debate.  Whatsapp groups are full of articles and discussions. Here is my piece in Hindustan Times on the report. I could not be more divided on a banking topic. While there is strong evidence of corporate promoters mismanaging banks, there is equally strong evidence of professionals/institution promoters mismanaging banks. It is hardly a case of black and white where only corporates are at fault. Moreover, to think there are no corporates owning banks at present is not correct. Indusind Bank, promoted by Hindujas, is one such bank. The Indusind

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On 20-Nov-2020 RBI released a report of the “Internal Working Group to Review Extant Ownership Guidelines and Corporate Structure for Indian Private Sector Banks”. Who would have imagined such a heavy worded report to create such a frenzy and debate.  Whatsapp groups are full of articles and discussions.

Here is my piece in Hindustan Times on the report.

I could not be more divided on a banking topic. While there is strong evidence of corporate promoters mismanaging banks, there is equally strong evidence of professionals/institution promoters mismanaging banks. It is hardly a case of black and white where only corporates are at fault.

Moreover, to think there are no corporates owning banks at present is not correct. Indusind Bank, promoted by Hindujas, is one such bank. The Indusind Bank was doing ok till the fiasco at Yes Bank created worries over Indusind as it was also a mid-size private bank.

And then we have the payment banks which are mainly owned by corporates. But this was treated as a reform back then despite critics pointing that it will lead to backdoor entry for corporates in banking. Even without a backdoor, a payment bank can do most of banking activities. They cannot give loans directly but can tie up with a major bank and give loans as suggested by the two former RBI officials.

In the end, what matters is what kind of Governance you have at all these banks/organisations.

Even Public Sector Banks do fine when the government somehow gets the right kind of people at the top and give them a good stable contract to work. But the government sadly gets this wrong most of the time leading to the current problems.

Same thing applies to private banks as well. One can argue that getting good governance is never easy but that is where majority of the problem lies. But we keep looking at ownership.

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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