Description
This is a presentation that describes why banks need to be nationalized, compares nationalized banks with private sector banks.
Disinvestment of Nationalised Banks
Nationalisation of Banks
History: • At first stage 14 major banks were Nationalised in 1969. • At second phase 6 more Banks were Nationalised in 1980.
Banks Nationalised in 1969
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? ? ? ? ? ?
?
The The The The The The The The The The The The The The
Central Bank of India Bank of India Punjab National Bank Bank of Baroda United Commercial Bank Canara Bank United Bank of India Dena Bank Syndicate Bank Union Bank of India Allahabad Bank Indian Bank Bank of Maharashtra Indian Overseas Bank
Banks Nationalised in 1980
? ? ?
?
? ?
The Andhra Bank Corporation Bank The New Bank of India The Oriental Bank of Commerce The Punjab and Sindh Bank Vijaya Bank
Nationalisation of Banks
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Objective: To Render The Largest Good to The Largest Number of People
Why Nationalisation
?
?
?
?
To help the mobilisation & development of national resources and its utilisation for productive purposes. To serve the needs of development of the economy Financial stake of the stakeholders was almost negative In 1968 Total Deposit:2750 cr. Paid Up Cap: 28.5cr. For achieving the socialistic pattern of society.
?
?
For effective channelisation of credits to priority fields of agriculture, SSIs and Exports. Expanding banking units in rural areas and enhancing public confidence.
Arguments Against
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Public control leaves the door open for corruption and favoritism. Their performances are not always commendable and losses are heavy. Delays and lethargy in work and service. Lack of competition resulted in drop in service rendered by banks. Poor generation of income & profit Operational inflexibility Managerial weaknesses Lack of autonomy in decision making.
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?
? ?
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Lopsidedness in the portfolio of loan operations affecting efficiency and productivity Poor recovery rate from priority sector Poor productivity of employees. Unwarranted and undue emphasis on the rural banking system. The strong trade unionism & red tapism. Inadequate work place, increased work load. Lack of transparency in accounting practices.
Financial liberalisation
As suggested by the Narasimham Committee report 1991, liberalisation is concerned with two important task which are necessary and interconnected. ? Rehabitilation of weak banks ? Effective & free competition. ? 33% of Government Stake
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?
First reduction in equity was carried out during the stint of Narasimha Rao in 1994, when legislation was passed to reduce government stake to 51% Out of total of 19 nationalised banks, 6 nationalised banks have gone in for it because of: - Most of them were weak banks; - Sale price of their share is not attractive
Government stake reduced to 33%
Government stake was reduced to 33%as per the finance act 2003. The reforms as per the act was as follows : ? Apart from the Government, no one would be allowed to hold more than one per cent of the bank's equity ? The appointment of the Chairman and other Directors would continue to be made by the Government and that the process of Parliamentary supervision over the banks would continue.
?
?
Apart from reducing the prescribed minimum shareholding of the Central Government, the restriction on the free transferability of shares held by the Government would be removed.
?
The number of whole-time Directors would be increased from two to four and the existing provision of nominating a Central Government official to one nationalised bank board would be modified to allow nomination on the board of not more than two banks.
?
?
The present mandatory requirement of nominating representatives of the Reserve Bank, financial institutions and Chartered Accountants on the boards of nationalised banks hs been removed. Responding to apprehensions about ``ganging up'' by the one per cent shareholders or of foreigners buying the equity, Mr. Mahajan said the Bill for amending the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and 1980 would be placed before a Parliamentary Standing Committee where members would be free to make further suggestions and put in more safeguards.
Comparative Analysis
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The comparative analysis has been done on the basis of following ratios:
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? ? ?
Return on Assets Operating exp to total income Interest earned on loans versus interest given on deposits Interest on investment %age of advances to total assets %age of investments to total assets
Return on Assets
BOB PNB Dena Central Bank HDFC SBI ICICI OBC IDBI Andhra bank 1.13619 1.083428 1.040151 0.975775 1.204293 0.902615 3.636545 1.673074 1.018689 1.716098
Operating expenses to total income
BOB PNB Dena Central Bank HDFC SBI ICICI OBC IDBI Andhra bank 22.95049 24.57581 21.21179 25.83851 26.74185 24.28316 22.99221 16.02287 27.09446 22.66398
Interest given on deposits versus interest earned on loans
BOB PNB Dena Central Bank HDFC SBI ICICI OBC IDBI Andhra bank 120.1333 101.3012 139.9038 127.2306 109.2355 171.0648 110.8495 115.9353 83.18537 106.9755
Interest on Investment
BOB PNB Dena Central Bank HDFC SBI ICICI OBC IDBI Andhra bank 54.43637 50.1779 52.91562 56.79222 49.50489 63.01053 30.8743 51.79031 33.80159 44.73833
%age of Other income to total income
BOB PNB Dena Central Bank HDFC SBI ICICI OBC IDBI Andhra bank 21.85341 19.35275 26.2405 15.99682 15.84801 19.99439 24.83196 17.94294 22.20122 23.33825
%age of advances to total assets
BOB PNB Dena Central Bank HDFC SBI ICICI OBC IDBI Andhra bank 41.82992 46.14865 42.47152 35.99965 41.94227 38.72673 49.58568 47.9942 46.3412 47.70814
%age of investments to total assets
BOB PNB Dena Central Bank HDFC SBI ICICI OBC IDBI Andhra bank 44.6709 41.16561 43.93643 49.57763 45.5168 45.52956 34.13183 40.95472 39.3687 38.19977
Fee Based Income
Fee Based Income
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The absolute fee income of the public sector banks is expectedly higher than that of their private sector counterparts, because of the higher scale of operations of the former. The proportion of exchange and brokerage as a percentage of the total fee income is higher for the private banks. Fee income as a percentage of the average total assets is higher for private banks. The rate of growth in fee income is significantly higher for private sector banks.
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?
?
Reasons for Increase In Fee Based Income of Pvt Sector Banks
The better position of private sector banks on the fee income front may be attributed to their larger product offerings and their technology platforms, which are better geared to provide customised solutions to customers. Some of the recent developments that have enabled the private banks increase their fee income are:
?
?
?
Thrust on retail growth that generates fee income in the form of processing fees. Leveraging of technology to widen customer base for products such as credit cards, debit cards and automated teller machine (ATM) cards. Strong focus on cash management activities on behalf of corporate clients.
Reasons for Increase In Fee Based Income of Pvt Sector Banks
?
Increase in non-fund based exposures to corporate clients in the form of letters of credit and guarantees by the adoption of aggressive pricing strategies. Increase in scale of sales and distribution of mutual funds, insurance products, bonds of public sector institutions/banks, GoI relief bonds, etc. Increase in focus on mandates for handling Government business, primarily collection of direct and indirect taxes, which is highly remunerative.
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?
Conclusion
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Healthy bank fuels healthy economy more the competition better the services, this supports privatisation.
?
Better performing public sector banks should be completely disinvested and weaker banks which have a chance of recovery should be merged else they should be close.
doc_581707970.ppt
This is a presentation that describes why banks need to be nationalized, compares nationalized banks with private sector banks.
Disinvestment of Nationalised Banks
Nationalisation of Banks
History: • At first stage 14 major banks were Nationalised in 1969. • At second phase 6 more Banks were Nationalised in 1980.
Banks Nationalised in 1969
? ? ? ? ? ?
?
? ? ? ? ? ?
?
The The The The The The The The The The The The The The
Central Bank of India Bank of India Punjab National Bank Bank of Baroda United Commercial Bank Canara Bank United Bank of India Dena Bank Syndicate Bank Union Bank of India Allahabad Bank Indian Bank Bank of Maharashtra Indian Overseas Bank
Banks Nationalised in 1980
? ? ?
?
? ?
The Andhra Bank Corporation Bank The New Bank of India The Oriental Bank of Commerce The Punjab and Sindh Bank Vijaya Bank
Nationalisation of Banks
?
Objective: To Render The Largest Good to The Largest Number of People
Why Nationalisation
?
?
?
?
To help the mobilisation & development of national resources and its utilisation for productive purposes. To serve the needs of development of the economy Financial stake of the stakeholders was almost negative In 1968 Total Deposit:2750 cr. Paid Up Cap: 28.5cr. For achieving the socialistic pattern of society.
?
?
For effective channelisation of credits to priority fields of agriculture, SSIs and Exports. Expanding banking units in rural areas and enhancing public confidence.
Arguments Against
? ?
?
?
?
?
? ?
Public control leaves the door open for corruption and favoritism. Their performances are not always commendable and losses are heavy. Delays and lethargy in work and service. Lack of competition resulted in drop in service rendered by banks. Poor generation of income & profit Operational inflexibility Managerial weaknesses Lack of autonomy in decision making.
?
?
? ?
? ?
?
Lopsidedness in the portfolio of loan operations affecting efficiency and productivity Poor recovery rate from priority sector Poor productivity of employees. Unwarranted and undue emphasis on the rural banking system. The strong trade unionism & red tapism. Inadequate work place, increased work load. Lack of transparency in accounting practices.
Financial liberalisation
As suggested by the Narasimham Committee report 1991, liberalisation is concerned with two important task which are necessary and interconnected. ? Rehabitilation of weak banks ? Effective & free competition. ? 33% of Government Stake
?
?
First reduction in equity was carried out during the stint of Narasimha Rao in 1994, when legislation was passed to reduce government stake to 51% Out of total of 19 nationalised banks, 6 nationalised banks have gone in for it because of: - Most of them were weak banks; - Sale price of their share is not attractive
Government stake reduced to 33%
Government stake was reduced to 33%as per the finance act 2003. The reforms as per the act was as follows : ? Apart from the Government, no one would be allowed to hold more than one per cent of the bank's equity ? The appointment of the Chairman and other Directors would continue to be made by the Government and that the process of Parliamentary supervision over the banks would continue.
?
?
Apart from reducing the prescribed minimum shareholding of the Central Government, the restriction on the free transferability of shares held by the Government would be removed.
?
The number of whole-time Directors would be increased from two to four and the existing provision of nominating a Central Government official to one nationalised bank board would be modified to allow nomination on the board of not more than two banks.
?
?
The present mandatory requirement of nominating representatives of the Reserve Bank, financial institutions and Chartered Accountants on the boards of nationalised banks hs been removed. Responding to apprehensions about ``ganging up'' by the one per cent shareholders or of foreigners buying the equity, Mr. Mahajan said the Bill for amending the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and 1980 would be placed before a Parliamentary Standing Committee where members would be free to make further suggestions and put in more safeguards.
Comparative Analysis
?
The comparative analysis has been done on the basis of following ratios:
? ? ?
? ? ?
Return on Assets Operating exp to total income Interest earned on loans versus interest given on deposits Interest on investment %age of advances to total assets %age of investments to total assets
Return on Assets
BOB PNB Dena Central Bank HDFC SBI ICICI OBC IDBI Andhra bank 1.13619 1.083428 1.040151 0.975775 1.204293 0.902615 3.636545 1.673074 1.018689 1.716098
Operating expenses to total income
BOB PNB Dena Central Bank HDFC SBI ICICI OBC IDBI Andhra bank 22.95049 24.57581 21.21179 25.83851 26.74185 24.28316 22.99221 16.02287 27.09446 22.66398
Interest given on deposits versus interest earned on loans
BOB PNB Dena Central Bank HDFC SBI ICICI OBC IDBI Andhra bank 120.1333 101.3012 139.9038 127.2306 109.2355 171.0648 110.8495 115.9353 83.18537 106.9755
Interest on Investment
BOB PNB Dena Central Bank HDFC SBI ICICI OBC IDBI Andhra bank 54.43637 50.1779 52.91562 56.79222 49.50489 63.01053 30.8743 51.79031 33.80159 44.73833
%age of Other income to total income
BOB PNB Dena Central Bank HDFC SBI ICICI OBC IDBI Andhra bank 21.85341 19.35275 26.2405 15.99682 15.84801 19.99439 24.83196 17.94294 22.20122 23.33825
%age of advances to total assets
BOB PNB Dena Central Bank HDFC SBI ICICI OBC IDBI Andhra bank 41.82992 46.14865 42.47152 35.99965 41.94227 38.72673 49.58568 47.9942 46.3412 47.70814
%age of investments to total assets
BOB PNB Dena Central Bank HDFC SBI ICICI OBC IDBI Andhra bank 44.6709 41.16561 43.93643 49.57763 45.5168 45.52956 34.13183 40.95472 39.3687 38.19977
Fee Based Income
Fee Based Income
?
The absolute fee income of the public sector banks is expectedly higher than that of their private sector counterparts, because of the higher scale of operations of the former. The proportion of exchange and brokerage as a percentage of the total fee income is higher for the private banks. Fee income as a percentage of the average total assets is higher for private banks. The rate of growth in fee income is significantly higher for private sector banks.
?
?
?
Reasons for Increase In Fee Based Income of Pvt Sector Banks
The better position of private sector banks on the fee income front may be attributed to their larger product offerings and their technology platforms, which are better geared to provide customised solutions to customers. Some of the recent developments that have enabled the private banks increase their fee income are:
?
?
?
Thrust on retail growth that generates fee income in the form of processing fees. Leveraging of technology to widen customer base for products such as credit cards, debit cards and automated teller machine (ATM) cards. Strong focus on cash management activities on behalf of corporate clients.
Reasons for Increase In Fee Based Income of Pvt Sector Banks
?
Increase in non-fund based exposures to corporate clients in the form of letters of credit and guarantees by the adoption of aggressive pricing strategies. Increase in scale of sales and distribution of mutual funds, insurance products, bonds of public sector institutions/banks, GoI relief bonds, etc. Increase in focus on mandates for handling Government business, primarily collection of direct and indirect taxes, which is highly remunerative.
?
?
Conclusion
?
Healthy bank fuels healthy economy more the competition better the services, this supports privatisation.
?
Better performing public sector banks should be completely disinvested and weaker banks which have a chance of recovery should be merged else they should be close.
doc_581707970.ppt