CHAPTER NO:-1 1.

BANK
MEANING OF BANK:The term bank is derived from the French word "ban co which means the money changers bench or desk on which European moneylender used to exist the coins of different countries for the purpose of lending or exchanging. A bank is an institution that deals with money and credit. Different people understand the meaning of bank in different ways. For a common man bank means a store house where money is stored for a businessman it is financial institution and for a day to day customer it is an institution where he can deposit his saving. t reality banks are service organi!ation selling banking services. "anks play an important role in the economy of any country as they hold the savings of the public. #rovide means of payment for goods and services and provide necessary finance for the development of business and trade. The involvement of public sector banks transformed the ndian economy. t was felt that bankers review their services not only as financial intermediary but also a pacesetter. Thus bank is a link in the flow of funds from savers to the users. $ence they should render an efficient customer service in order to retain the present customers and also to attract the potential customer.

DEFINITION:%ection &'c( of "anking )egulation Act* +,-, defines banking as* Accepting for the purpose of lending or investment of deposits of money from the public repayable on demand or otherwise* and withdraw able by che.ue* draft or order./

TYPES OF BANKING
The banking industry can be divided into following sector01
1)

Retail ban !:)etail banks provide basic banking services to individual consumer. Examples include saving bank* and loan association* and recurring and fixed deposits.

") C##$e%ati&e ban :2ooperative banks are governed by the provision of state cooperatives act and meant essentially for providing cheap credit to their members.
')

In&e!t(ent ban !:An investment bank is financial institution that assists individual* corporation and government in raising capital by underwriting and acting as the client3s agent in the issuance of securities.

)) S$e*iali+e, ban !:%peciali!ed banks are foreign banks* industrial banks* development banks* export1import banks catering to specific needs of these uni.ue activities. These banks provide financial aid to industries* heavy turnkey pro4ects of foreign trade.

-) Cent%al ban !:2entral banks are banker3s bank.

O&e%&ie. #/ ban in0 in,1!t%2 in In,ia Int%#,1*ti#n

ndian banking is the lifeline of the nation and its people. "anking has helped in developing the vital sectors of the economy and usher in a new dawn of progress on the ndian hori!on. The sector has translated the hopes and aspirations of millions of people into reality. "ut to do so* it has had to control miles and miles of difficult terrain* suffer the indignities of foreign rule and the pangs of partition. Today* ndian banks can confidently compete with "ank of the world before the 56th century* usury* or lending money at a high rate of interest* was widely prevalent in rural ndia. Entry of 7oint stock banks and development of 2ooperative movement have taken over a good deal of business from the hands of the ndian money lender* who although still exist* have lost his menacing teeth. n the ndian "anking %ystem* 2ooperative banks exist side by side with commercial banks and play a supplementary role in providing need1 based finance* especially for agricultural and agriculture1based operations including farming* cattle* milk* hatchery* personal finance etc. along with some small industries and self1employment driven activities. 8enerally* co1operative banks are governed by the respective co1 operative acts of state governments. "ut* since banks began to be regulated by the )" after +st 9arch +,::* these banks are also regulated by the )" after amendment to the "anking )egulation Act +,-,.

The )eserve "ank is responsible for licensing of banks and branches* and it also regulates credit limits to state co1operative banks on behalf of primary co1operative banks for financing %% units. ndia originated in the first decade of +;th century with The 8eneral "ank of ndia "anking in coming into existence in +<;:. This was followed by "ank of $industan. "oth these banks are now defunct. After this* the ndian government established three presidency banks in ndia. The first of three was the "ank of "engal* which obtains charter in +;6,* the other two presidency bank* vi!.* the "ank of "ombay and the into the mperial "ank of ndia ' " ( under the mperial "ank of ndia Act* +,56 =which is now known as the %tate "ank of ndia. "ank of 9adras* were established in +;-6 and +;->* respectively. The three presidency banks were subse.uently amalgamated into the mperial "ank of ndia ' " ( under the mperial "ank of ndia Act* +,56 =which is now known as the %tate "ank of ndia. "y the +,66s* the market expanded with the establishment of banks such as #un4ab ?ational "ank* in +;,& in @ahore and "ank of ndia* in +,6:* in 9umbai = both of which were founded under private ownership. The )eserve "ank of ndia formally took on the responsibility of regulating the ndian banking sector from +,>&. After ndia3s independence in +,-<* the )eserve "ank was nationali!ed and given broader powers. As the banking institutions expand and become increasingly complex under the impact of deregulation* innovation and technological up gradation* it is crucial to maintain balance between efficiency and stability. During the last >6 years since nationali!ation tremendous changes have taken place in the financial markets as well as in the banking industry due to financial sector reforms. 5

The banks have shed their traditional functions and have been innovating* improving and coming out with new types of services to cater emerging needs of their &customers. "anks have been given greater freedom to frame their own policies. The acceptance of the ?arasimhan committee recommendations by the government has resulted in transformation of recommendations by the government of has hitherto highly regimented and over bureaucrati!ed banking system into market driven and extremely competitive one. Aith the emergence of new private banks* the private bank sector has become enriched and diversified with focus spread to the wholesale as well as retail banking. The existing banks have wide branch network and geographic spread* whereas the new private banks have the clout of massive capital* lean personnel component* the expertise in developing sophisticated financial products and use of state1of1the1art technology. 8radual deregulation that is being ushered in while stimulating the competition would also facilitate forging mutually beneficial relationships* which would ultimately enhance the .uality and content of banking. n the final phase* the banking system in ndia will give a good account of itself only with the combined efforts of cooperative banks* regional rural banks and development banking institutions which are expected to provide an ade.uate number of effective retail outlets to meet the emerging socio1economic challenges during the next two decades. The electronic age has also affected the banking system* leading to very fast electronic fund transfer. The growth in the ndian "anking ndustry has been more .ualitative than .uantitative and it is expected to remain the same in the coming years. "ased on the pro4ections made in the " ndia Bision 5656" 6

prepared by the #lanning 2ommission and the Draft +6th #lan* the report forecasts that the pace of expansion in the balance1sheets of banks is likely to decelerate. The total assets of all scheduled commercial banks by end19arch 56+6 are estimated at )s -6* ,6*666 corers. That will comprise about :& per cent of 8D# at current market prices as compared to :< per cent in 566516>. "ank assets are expected to grow at an annual composite rate of +>.- per cent during the rest of the decade as against the growth rate of +:.< per cent that existed between +,,-1,& and 566516>. t is expected that there will be large additions to the capital base and reserves on the liability side. The ndian "anking industry* which is governed by the "anking )egulation Act of ndia* +,-, can be broadly classified into two ma4or categories* nonscheduled banks and scheduled banks. %cheduled banks comprise commercial banks and the co1operative banks. The ndian "anking industry* which is governed by the "anking )egulation Act of ndia* +,-, can be broadly classified into two ma4or categories* nonscheduled banks and scheduled banks. The ndian "anking industry* which is governed by the "anking )egulation Act of ndia* +,-, can be broadly classified into two ma4or categories* nonscheduled banks and scheduled banks. %cheduled banks comprise commercial banks and the co1operative banks. n terms of ownership* commercial banks can be further grouped into nationali!ed banks* the %tate "ank of ndia and its group banks* regional rural banks and private sector banks 'the oldC new domestic and foreign(. The #ublic %ector "anks '#%"s(* which are the base of the "anking sector in ndia account for more than <; per cent of the total banking industry assets. Dnfortunately they are burdened with excessive ?on 7

#erforming assets '?#As(* massive manpower and lack of modern technology. En the other hand the #rivate %ector "anks are making tremendous progress. They are leaders in nternet banking* mobile banking* phone banking* AT9s. As far as foreign banks are concerned they are likely to succeed in the ndian "anking ndustry. n the ndian "anking ndustry some of the #rivate %ector "anks operating are D" "ank* ?8 Byasa "ank* %" 2ommercial and nternational "ank @td* "ank of )a4asthan @td. and banks from the #ublic %ector include #un4ab ?ational bank* Bi4ay a "ank* D2E "ank* Eriental "ank* Allahabad "ank among others. A?F 8rind lays "ank* A"?1A9)E "ank* American Express "ank @td* 2iti bank are some of the foreign banks operating in the ndian "anking ndustry. As far as the present scenario is concerned the "anking ndustry in ndia is going through a transitional phase. The first phase of financial reforms resulted in the nationali!ation of +- ma4or banks in +,:, and resulted in a shift from 2lass banking to 9ass banking. This in turn resulted in a significant growth in the geographical coverage of banks. Every bank had to earmark a minimum percentage of their loan portfolio to sectors identified as Gpriority sectors/. The manufacturing sector also grew during the +,<6s in protected environs and the banking sector was a critical source. The next wave of reforms saw the nationali!ation of : more commercial banks in +,;6. %ince then the number of scheduled commercial banks increased four1fold and the number of bank branches increased eight1fold. 8

After the second phase of financial sector reforms and liberali!ation of the sector in the early nineties* the #ublic %ector "anks '#%"( s found it extremely difficult to compete with the new private sector banks and the foreign banks. The new private sector banks first made their appearance after the guidelines permitting them were issued in 7anuary +,,>. Eight new private sector banks are presently in operation. These banks due to their late start have access to %tate1of1the1art technology* which in turn helps them to save on manpower costs and provide better services.

In,ian ban in0 !*ena%i#

?ationali!ed banks such as %tate "ank of ndia '%" (* though pygmies in the international banking market are banking behemoths of ndia. They have branches spread over the entire length and breadth of the country. %" in particular is all1pervasive en4oying a sprawling network of ,666 branches. ts blue and white shingle is visible to the smallest hamlet. t has assets understood to be worth about )s5* 55*&66 crore 'H&5 billion(. %" has a very conservative approach to accounting particularly when it comes to declaration of its assets. #robably modesty does not permit the bank to exhibit its strengths. n particular* it has real estate properties some of which are heritage sites all over the country. These are estimated to collectively command a value of )s.>6* 666 crores. This* it is believed* does not get reflected in its book of accounts. %" en4oys a monopoly of the government business. The )eserve "ank of ndia owns about :6I of the bank3s e.uity. To its credit* %" mobili!ed H-.5 billion through the )esurgent ndia "onds ') "( issue in 9

4ust > months down the post1#okhran sanction period. This was the difficult time when the international credit rating agencies had downgraded the country. %" * time and again* does a rescue act in the forex market to contain any volatility of the rupee. %" was formed under the %" Act in +,&& with the takeover of mperial "ank and amalgamation of "ank of "engal* "ank of "ombay* and "ank of 9adras. The government mopped up around ,>I of the e.uity* leaving <I to private ownership. "y this act the e.uity of )" cannot be diluted below &&I. %" en4oys a pool of best managerial talent* assured government business* a countrywide network of branches and strong brand credibility in the ndian market. "ut* that numerous positions are sliding with the entry of sleeker private and foreign banks into the ndian "anking scene. The bank is continuously restructuring itself and for this* they even hire the services of foreign consultants but the pace has to be hastened. Aith the government offering an assured business* nationali!ed banks and %tate "ank of ndia in particular should not take a complacent view. They should evolve service1intensive products and make their employees customer1friendly. Aith competition from private and foreign banks knocking at the door* the banks should reali!e* si!e is no more an insurance against the onslaught of competition from sleek private and foreign banks. A revolutionary approach to privati!e ownership is the need of the hour.

10

C3allen0e! Fa*in0 B2 Ban in0 In,1!t%2

The bank marketing is than an approach to market the services profitability. t is a device to maintain commercial viability. The changing perception of bank marketing has made it a social process. The significant properties of the holistic concept of management and marketing has made bank marketing a device to establish a balance between the commercial and social considerations* often considered to the be opposite of each other. A collaboration of two words banks and marketing thus focuses our attention on the following001 J "ank marketing is a managerial approach to survive in customers. J t is a social process to sub serve social interests. J t is a fair way of making profits. J t is an art to make possible performance1orientation. J t is a professionally tested skill to excel competition. highly

competitive market as well as reliable service delivery to target

11

12

Ban in0 St%1*t1%e in In,ia

13

CHAPTER NO:-" ". 4ibe%ali+ati#n5 P%i&ati+ati#n5 Gl#bali+ati#n a/te% 1661.

Int%#,1*ti#n
ntroduction 7uly +,,+* ndia has taken a series of measures to structure the economy and improve the "E# position. The new economic policy introduced changes in several areas. The policy have salient feature which are0 1 +. @iberlisation 'internal and external( 5. Extending #rivati!ation >. 8lobalisation of the economy which are known as G@#8/. '@iberali!ation* privati!ation* globali!ation(.

Rea!#n! /#% i($le(entin0 4PG:

Excess of consumption and expenditure over revenue resulting in heavy govt. borrowings. 8rowing inefficiency on the use of resources. Ever protection to industries. 9ismanagement of the firm and the economy. ncrease in losses for public sector enterprises. Barious distortions like poor technological development* shortage of foreign exchange and borrowing from abroad. @ow foreign exchange reserves. nflation.

14

1) 4ibe%ali+ati#n:
@iberali!ation is a very broad term that usually refers to fewer government regulations and restrictions in the economy in exchange for greater participation of private entities @iberali!ation refers to the relaxation of the previous government restriction usually in area of social and economic policies. Ahen government liberali!ed trade * it means it has removed the tariff *subsidies and other restriction on the flow of goods and services between the countries. T3e Pat3 #/ libe%ali+ati#n: )elief for foreign investors. Devaluation of ndian rupees. ?ew industrial #olicy. ?ew trade policy. )emoval of import )estrictions. @iberali!ation of ?) remittances. Freedom to import technology. Encouraging foreign tie1ups. 9)T# relaxation. #rivati!ation of public sector.

A,&anta0e! #/ libe%ali+ati#n:
ndustrial licensing ncrease the foreign investment. ncrease the foreign exchange reserve. ncrease in consumption and 2ontrol over price 2heck on corruption. )eduction in dependence on external commercial borrowings. 15

 Di!a,&anta0e! #/ 4ibe%ali+ati#n:
ncrease in unemployment. @oss to domestic units. ncrease dependence on foreign nations

Dnbalanced development.

") P%i&ati+ati#n:
#rivati!ation means transfer of ownership andCor management of an enterprise from the public sector to the private sector . t also means the withdrawal of the state from an industry or sector partially or fully. #rivati!ation is opening up of an industry that has been reserved for public sector to the private sector. #rivati!ation means replacing government monopolies with the competitive pressures of the marketplace to encourage efficiency* .uality and innovation in the delivery of goods and services.

Di//e%ent 7a2! in $%i&ati+ati#n:

@iberali!ation Approach. )elative %hare Enlargement Approach. Association of #rivate %ector 9anagement Approach. Transfer of 9inority E.uity Ewnership Approach. Transfer of 2omplete Ewnership.

A,&anta0e! #/ P%i&ati+ati#n:
#rivati!ation helps to reduce the burden on 8ovt. 16

t will help profit making public sector unit to moderni!e and diversify their business. t will help in making public sector unit more competitive. t will help to improving the .uality of decision making* because the decisions are free from any political interference.

#rivati!ation may help in reviving sick units which are the liability of the public sector. t Encourage the new innovations without any restrictions. ndustrial growth. ncrease the foreign investment. ncrease in efficiency.

Di!a,&anta0e! #/ P%i&ati+ati#n:
ndustrial sickness. @ack of welfare. 2lass struggle. ncrease in ine.uality Epposition by employees.

#roblem of financing. ncrease in unemployment. gnores the weaker sections. gnore the national importance.

17

') Gl#bali+ati#n:
8lobali!ation implies integration of the economy of the country with the rest of the world economy and opening up of the economy for foreign direct investment by liberali!ing the rules and regulations and by creating favorable socio1economic and political climate for global business. According to 9F0 1/The growing economic interdependence of countries worldwide through increasing volume and variety of cross border transaction in goods and services and of international capital cash flows* and through the more rapid and widespread diffusion of technology.

Feat1%e! #/ Gl#bali+ati#n:
Epening and planning to expand business throughout the world. Erasing the difference between domestic market and foreign market. "uying and selling goods and services fromCto any countries in the world. @ocating the production and other physical facilities on a consideration of the global business dynamics* irrespective of national consideration. "asing product development and production planning on the global market consideration. 8lobal orientation of organi!ational structure and management culture.

F#%ei0n (a% et ent%2 !t%ate0ie!:

Exporting. @icensingCFranchising. 2ontract manufacturing. 9anagement contract. 18

 Assembly operations. Fully owned manufacturing facilities. 7oint venturing. 9erger and ac.uisition. %trategic alliance. 2ountertrade.

P%#! an, C#n! #/ Gl#bali+ati#n:

8lobali!ation have several benefits *these are0 1 Free flow of capital and increase in the total capital employed. Free flow of technology. ncrease in industriali!ation. %pread of production facilities throughout the globe. "alanced development of world economies ncrease in production and consumption.

2ommodities at lower price with high .uality. ncrease in 4obs and income.

$igher %tandard of living. "alanced human development.

Ne0ati&e e//e*t! #/ Gl#bali+ati#n:

@oss of domestic industries. Exploits $uman resource. Decline in income. Dnemployment. Transfer of natural resources. 19

 @ead to commercial and political colonism. Aidening gap between rich and poor.

4PG S1b!i,ie! in In,ia

The +,,6s were a time of rapid economic change in ndia. After several decades of pursuing protectionist trade policies and #lacing severe limitations on foreign investment* ndia began to Epen up to foreign investment and trade. Tariffs on imported 2apital goods have been lowered* and in some cases eliminated. )estrictions on foreign ownership have been relaxed. ?ow* in many sectors* ma4ority foreign ownership is permitted. %ignificant political resistance to economic liberali!ation persists* but recent elections have provided impetus for reform. The government has stated that it wants to increase foreign direct investment 'FD ( toH+6 billion per year. "y the mid1+,,6s* real 8D# growth rate had reached a rate of <.-I a year and is currently pro4ected at above :I for the next few years. The country is struggling to attract investment in the fuels sector. The issues in the @#8 industry are demonstrative. n +,,5* >& private sector companies developed plans for the import and distribution of @#8 in the hope that they would be able to benefit from the +6million consumer1 long .ueue for @#8 connections. $owever* while the companies have added 4ust over a million customers to their roster* the public sector oil companies have managed to rope in a 20

phenomenal +- million new customers during the same period mainly based on prices that are highly subsidi!ed. This situation raises several .uestions regarding the environment for investment in ndia3s fuels sector.

C3a$te% n#:-'
'.PRI8ATI9ATION
Meanin0 #/ $%i&ati+ati#n
#rivati!ation in narrow sense implies the introduction of private ownership in public owned enterprises but in the broader sense* besides private ownership* the induction of private management and control in public sector enterprises. #rivati!ation is the incidence or process of transferring ownership of business from the public sector 'government( to the private sector 'business(. n a broader sense* privati!ation refers to transfer of any government function to the private sector including governmental functions like revenue collection and law enforcement. The term "#rivati!ation" also has been used to describe two unrelated transactions. The first is a buyout* by the ma4ority owner* of all shares of a public corporation or holding companyKs stock* privati!ing a publicly traded stock. The second is a demutuali!ation of a mutual organi!ation or cooperative to form a 4oint stock company.

De/initi#n
Defines the concept of privati!ation as Gprivati!ation is the general process of involving the private sector in the ownership or operation of the state owned enterprises/.

Int%#,1*ti#n
21

#rivati!ation began in +,,+ with enactment of the @aw on nitial #rivati!ation of %tate #roperty. Dnder this law* %tate property was sold for investment vouchers and cash payments. A substantial number of the vouchers issued were used for the privati!ation of housing. n addition* former owners of expropriated land and other real estate were allowed to restore their ownership rights. The first round of privati!ation was completed in +,,&. The @aw on #rivati!ation of %tate Ewned and 9unicipal #roperty of - 7uly +,,& launched the second stage in the process. During this second stage* %tate1owned and municipal property was sold exclusively for cash and at a market price as determined through evaluation of the property. @ithuanian and foreign investors participated e.ually in the privati!ation process. The third stage of privati!ation began from adoption of the new wording of the @aw on #rivati!ation of %tate1owned and 9unicipal #roperty of ?ovember +,,<. This enactment introduced several substantial changes* including replacement of the role of the enterprise founder and many of responsibilities of the #rivati!ation Agency with the %tate #roperty Fund.

PRI8ATI9ATION IN INDIA
HISTORY OF PRI8ATI9ATION
#rivati!ations gather momentum around mid +,;6s and since then has become the hallmark of new wave of economic reforms sweeping across the world. Today more than +6*666 state owned enterprises have been privati!ed in over ,6 countries.

22

The trend towards privati!ation has been observed in developed and the developing economies* in the oriented and socialist including communist countries. The basic reason for privati!ation is the growing disappointment with the functioning of the public sector undertakings and state owned enterprises. n +,:6* there was a trend towards nationali!ation in "ritain. "ut this trend reversed by +,<6 and privati!ation gathered momentum by selling stated owned enterprises. "esides DL* Argentina* "ra!il* 8ermany* France* taly* 7apan* 9exico* ?igeria* %pain* Turkey etc. also announced the policy of privati!ation. As far as ndia is concerned it has deregulated or liberali!ed the industrial sector in varying degree. #rivati!ation is very necessary for ndia3s welfare because main points are here that ndia public sector i.e. 8ovt. 2orporations has lot of problems like bureaucracy * red tapism * corruptions * not good implementation of plans * lot of ignorance about work. These are some of basic problems of public sectors and in privates we experienced good .uality services* product* customer satisfaction and good for social welfare and it is also good for globali!ation and shinning of ndia. #ublic sectors cannot participate in countryKs shining. 8ovt. can only make some policies for better work but again the same problem of implementation of policies. En the other hand private sector makes full effort to implement the policies. %o privati!ation is only way by which a country can succeed. Mou can take the examples of America and 7apan these are the countries where 23

private market prevails and these are the most developed countries of the world also when %oviet Dnion tried that public sectors. 2riteria they did not succeed in that process so they also have to make the changes in the market and made it private sectors. 9arket that they r progressing at good pace. %o in my opinion privati!ation is the best way for success. #rivati!ation will help in the economical development of the country. "ut private firms are generally self1centered. They donKt seek their interest in the interest of all. They think only in the interest of their own company. 9ore often they possess a selfish approach. Enly the economical development should not be considered. tKs not the only dimension. There are many other issues which are generally not taken care by private firms like environmental protection* farmerKs interests* poor menKs interests and many more. %o complete privati!ation is not desirable. There should be a balance between the public sector and private industries. #rivate firms are generally self1centered and they don3t care for the interest of the public. "ut the government can make such rules and regulations for these firms so that they are checked from indulging into malpractices. 9oreover these firms cannot totally be self1centered. They do need employees to work for themN this in turn would increase employment opportunities. #rivati!ation would also mean end of government3s monopoly* which ensures market competition wherein the consumers benefit the most. 24

Ae have in front of us the privati!ation of telecom industry and the decline in tariff due to competition. As far as interests of farmers are concerned the government can intervene and ensure that they get their dues. #rivati!ation every option has its pros and cons y not we attempt for a midway we take good points of privati!ation and try to remove off the bad point of #%D 4ust imagine how much synergistic effect this will have when the mmense power of government machinery and the financial and knowledge input of private sector with an aim to surge ahead will have on the growth of people and country. t is necessary to remove poverty* illiteracy from country and not the poor and illiterate from country. The 8rowth rate of ,I is 4ust a computed value by a human being and not real face of status of population in our country* so 4ust going by saying we have ,I growth is 4ust trying to make one happy and run from reality. Thus in my opinion the private and #%D should 4oin hands to help the country surge ahead to become a superpower. The purpose of this paper is to examine the impact of partial privati!ation on performance of state1owned banks using data from the ndian banking industry during the period +,;:1566>* and test the hypothesis that privati!ation leads to improvement in performance even when the government retains controlling stakes. Design methodology approach = Employing the techni.ue of stochastic frontier analysis* bank1specific estimates of total factor productivity were obtained* because they can be considered as a measure of performance* 25

along with four accounting measures. #anel regression models were employed to assess the impact of partial privati!ation on these performance indicators. Findings = #artial privati!ation was found to result in significant improvement in performance of state1owned banks. This finding is robust to alternative model specifications and different techni.ues for controlling potential selection bias. )esearch limitationsCimplications = The paper focuses on the impact of partial privati!ation on operational and financial performance of banks. Future work could consider the effects on other aspects such as wages and financial development. #ractical implications = The results suggest that faced with political opposition to full privati!ation* even if the government does not relin.uish control* the exposure to market discipline through partial privati!ation may be an effective way of improving performance of state1owned banks. EriginalityCvalue = This is the first work to examine the effects of partial privati!ation in the context of ndian banks and one of the very few to study this issue for any banking industry.

Ban $%i&ati+ati#n i! a0ain!t $e#$le:! inte%e!t

The country witnessed a total and successful all1 ndia strike by the employees of all banks in public and private sectors* foreign banks* )egional )ural "anks '))"s( and cooperative banks on ?ovember +&* 5666. The Dnited Forum of "ank Dnions issued the call on the following demands0 a( Against privati!ation of #ublic %ector "anks '#%"s( by way of dilution of govt. e.uity to >>IN

26

b( Against the introduction of Boluntary )etirement %cheme 'B)%( in public sector banksN c( Against the contemplated reduction in retirement age from :6 to &;. These contemplated measures of the Ba4payee 8overnment* on the recommendations on the ?arasimhan 2ommittee* are against the interests of the nation* national economy* banking industry and also bank employees. "ringing down the government e.uity below &+I is privati!ation of banks. This will be an act of regression and not reform measure* as it will put the country3s wheels backward. En +, 7uly* +,:,* +- ma4or banks were nationali!ed followed by : more on +& April* +,;6. n between* +,: ))"s were established in the country in the public sector. This apart* there are public sector banking institutions like D" * ?A"A)D* % D" etc. Today* about ;6I of banking activities are in public sector. ?ationali!ation of banks was necessitated when the nation* after independence* needed massive investments in agriculture and industry so as to make the country self1reliant in food and industry* particularly in core sectors like electricity and steel etc. Food was scarce in the late 3&6s and 3:6s and it led to food riots. #rivate sector banks never cared for the country but were concerned only about expansion of their own industrial empires with the people3s savings mobili!ed in banks as deposits. f ndia is today self1sufficient in food* the credit must go to the public sector banks* which have gone to the villages and extended credit to peasants and other sections of the rural poor. "ut for the enormous expansion of #%"s and the massive credit delivery to the rural sectors* 27

poorer sections* export sector and other priority segments* the country could not have come to its present position. The real .uestion with regard to the banks is not the extent of ownership of e.uity but control over the capital resources. n fact* in banking industry* paid1up capital plays a very nominal role as will be evident from the following facts0 As on >+ 9arch* 5666 ' n crores( ?ame of the bank %tate bank of ndia "ank of "aroda Eriental bank of 2ommerce 2entral "ank of ndia D2E "ank +,5.&> +;6&.-& 55:-.&5 556,&.5+ >&;<+.<+ +;>&,.,& #aid1up capital &5:.>6 5,-.>5 Deposits +,:;5+.66 &+>6;.66

n a country like ndia* where vast masses are illiterate* where banking habits are extremely slow and sluggish* safety of people3s savings in the form of deposits has to be the prime concern of the financial authorities. The government control over the capital alone can guarantee the safety of people3s savings against private ownership of e.uity. During the last few years* when some #%"s reported losses for reasons beyond their control* deposit growth rate signifying people3s confidence was better than profit1making private banks. Ence the banks are privati!ed* the enormous resources mobili!ed in banks out of people3s savings would not be available to the government for developmental purposes. 28

#rivati!ation of banks is aimed at diverting people3s attention from the staggering and ever1increasing portfolio of bad and doubtful debts* euphemistically called ?on1#erforming Assets '?#As(* which stand at more than )s.+*66*666 crore if one adds the overdue interest on all Obad loans3 and Owrite1offs3 from the operating profits. "ank privati!ation is aimed at providing a cover to the errant banks and defaulters and diverts people3s attention from this key issue* which is solely responsible for the present ill health of banks. t is argued that for meeting the re.uirement of 2apital Ade.uacy )atio '2A)(* privati!ation of banks is inescapable. This is not true. Ence Obad loans3 are recovered for which drastic and stringent steps P legal* moral and penal P are needed and banks are allowed to run by professionals free from bureaucratic control and political interference* nationali!ed banks shall be earning handsome profits. t is the 8overnment3s inaction in recovering bad loans that is prime reason for the banks3 problems of 2A). The latest scheme of the )" for recovery of big loans through compromise proposals is a bonan!a to the loan defaulters. t is also argued that even though the government e.uity will be reduced to >>I* the public sector character of the nationali!ed banks will be retained because the government will appoint chairmenC9Ds of the banks. Eut of +& directors* +6 will be from private sector. A chairman of the bank* though appointed by the government* shall be bound by the "oard of Directors where private sector will be in unchallengeable ma4ority. $ence the talk of retaining the public sector character of the banks is without any basis. Ence the banks are privati!ed* everything will be private. 29

Ence the nationali!ed banks are handed over to the private sector* credit flows to the rural sector and agriculture shall be steadily choked. %imilarly* small* mini and cottage industries* self1employed persons* like vendors* cobbles* rickshaws1pullers shall be thrown out of the credit delivery system. The recent bank failures in %outh1East Asia* including 7apan* could hardly affect ndia or its banking system. The reasons for this contrasting situation are not difficult to understand. Ahile ndia had a strong public sector banking system* more or less well regulated* these Asian Tigers were having private banks* with hardly any regulation and run on the prescriptions of Aorld "ank and 9F. Ahile many banks closed down* currencies collapsed* thousands lost their 4obsN economy got the rudest shock* resulting* ultimately* in political instability. Taking advantage of this chaos and anarchy* foreign capital took over many banks and the financial system. "ank privati!ation is hence against people3s interest.

A,&anta0e! an, ,i!a,&anta0e! #/ $%i&ati+ati#n

AD8ANTAGES OF PRI8ATI9ATION #rivati!ation indeed is beneficial for the growth and sustainability of the state1owned enterprises. The advantages of privati!ation can be perceived from both microeconomic and macroeconomic impacts that privati!ation exerts. A. Mi*%#e*#n#(i* a,&anta0e!: 30

Q %tate owned enterprises usually are outdone by the private enterprises competitively. Ahen compared the latter show better results in terms of revenues and efficiency and productivity. $ence* privati!ation can provide the necessary impetus to the underperforming #%Ds. Q #rivati!ation brings about radical structural 2hanges providing momentum in the competitive %ectors. Q #rivati!ation leads to adoption of the global best practices along with management and motivation of the best human talent to foster sustainable competitive advantage and improvised management of resources. B. Ma*%#e*#n#(i* a,&anta0e!: Q #rivati!ation has a positive impact on the financial health of the sector which was previously state dominated by way of reducing the deficits and debts. Q The net transfer to the %tate owned Enterprises is lowered through privati!ation. Q $elps in escalating the performance benchmarks of the industry in general. Q 2an initially have an undesirable impact on the employees but gradually in the long term* shall prove beneficial for the growth and prosperity of the employees. Q #rivati!ed enterprises provide better and prompt services to the customers and help in improving the overall infrastructure of the country.

31

 DISAD8ANTAGES OF PRI8ATI9ATION #rivati!ation in spite of the numerous benefits it provides to the state owned enterprises* there is the other side to it as well. $ere are the prominent

Di!a,&anta0e! #/ P%i&ati+ati#n: Q #rivate sector focuses more on profit maximi!ation and less on social ob4ectives unlike public sector that initiates socially viable ad4ustments in case of emergencies and criticalities. Q There is lack of transparency in private sector and stakeholders do not get the complete information about the functionality of the enterprise. Q #rivati!ation has provided the unnecessary support to the corruption and illegitimate ways of accomplishments of licenses and business deals.

OB;ECTI8ES OF PRI8ATI9ATION
To improve the performance of the #%D* s so as to lessen the financial burden on tax payers. To reduce government inference in the economy. To promote greater private initiative. To promote wider share ownership. To development of the capital market. To promote competition and reward efficiency. To reduce the administrative burden on the state. To increase the efficiency and competitive power of the enterprise. 32

 To reduce deficit financing and public deficit.

I($a*t #/ P%i&ati+ati#n #n Ban in0 Se*t#%

nterest rate is more in private sector banks as comparative to the public sector banks. #rivate "anks are responsible for this recession in the world R also in ndia. Fa*t i! t3i!:#rivate "anks give loans to the real1estate sector and many other similar sectors with the eyes closed not taking even some proper securities by these companies. And these companies put this money in the stock exchange and when the rates of this wealth go down* and they could not return money the banks. %o banks could not recover their money which is gives as a loan and bear a loss in terms of business of the bank* which affect the market very badly. Their procedures and systems are also not so good. %ince now in the private banks government has less control over the bank activities* #rivate sector use private recovering agencies to recover bad loans. These agencies use wrong means and force to recover loans from people %ome people even commit suicide under the pressure of the recovery agents. The employees of #rivate sector banks are not pretty satisfied with the policies of the private banks. As the working hours are more and the salaries are less. That3s why more than ;66*666 #%D bank employees recently protest against privati!ation. There is nothing bad with the public sector banksN the difference is in the policies. "ecause of loopholes in the policies people uses banks for their 33

personal cause. #rivate sector banks boost the ndian economy as their efficiency is much more than the public sector banks. "ut there is still a long road for privati!ation. #rivate "anks still have to rural sector which contribute large in the growth of ndia.

Mi!!i#n !tate(ent #/ $%i&ati+ati#n

#rivati!ation is envisaged to foster competition* ensuring greater capital nvestment* competitiveness and moderni!ation* resulting in enhancement of employment and provision of improved .uality of products and services to the consumers and reduction in the fiscal burden.

ARG<MENTS AGAINST PRI8ATI9ATION

Ene of the Directive #rinciples is that the 8overnment would strive at redistributive 4ustice in the country. "ank privati!ation is a step away from this direction. #ublic sector banks in ndia have already been exposed to increasing competition. The forces of competition have already pushed #ublic sector #rivati!ation opens the way for the domination of the economy by foreign capital. %ince it is extremely difficult to distinguish in practice between domestic and foreign capital within the private sector when they are operating together in 4oint ventures* or when a domestic firm can be a front for foreign capital* any expansion in the scope for the private sector necessarily enlarges the sphere of operation of foreign capital as well. 34

#rivati!ation would remove a large chunk of the economy from the purview of public scrutiny and hence from the realm of social accountability. A basic distinction between public and private property consists in the fact that the former* in principle* is socially accountable* and this is enforced through #arliament and its committees. %ocial accountability is not merely intrinsically desirable. t becomes absolutely necessary when enterprises have to fulfill certain social functions going beyond mere profit1 making. #rivati!ation* and even making public enterprises concentrate exclusively on profit1 making* effectively does away with these social functions. All privati!ation involves the selling of state property at "throwaway" prices. This is true the world over. And it has been true in ndia too as the 2omptroller and Auditor1 8eneralKs report pointed out some time ago. ndia has been a planned economy for the last about five decades. "ut in absence of any effective control over the commercial banks* the economic planning was incomplete and monetary policy targets were difficult to achieve and pursue.

IMPORTANT REASONS FOR PRI8ATI9ATION IN INDIA:

'+( )eleasing the large amount of public resources locked up in non1 strategic #%Es* for redeployment in areas that are much higher on the social priority* such as* basic health* family welfare* primary education and social and essential infrastructureN '5( %temming further outflow of these scarce public resources sustaining the unviable non strategic #%EsN 35

'>( )educing the public debt that is threatening to assume unmanageable proportions. '-( Transferring the commercial risk* to which the taxpayersK money locked up in the public sector* is exposed* to the private sector where ever the private sector is willing and able to step in. '&( )eleasing other tangible and intangible resources* such as* large manpower currently locked up in managing the #%Es* and their time and energy* for redeployment in high priority social sectors which are short of such resources.

T3e nee, /#% $%i&ati+ati#n a%i!e! #1t #/ t3e !it1ati#n! li e:

'+( 2ontrol of budgetary deficit '5( )esource mobili!ation '>( )eduction of extra tax burden '-( Flow of funds to public '&( #roduction increase ':( )etrieval of civil servants from public enterprises to better utili!ation in governance and administration. '<( ncrease in competition* both in domestic as well as international markets.

THE P<B4IC DISTINCTION AND CONCEPT OF PRI8ATI9ATION

36

The terms public and private are fundamental to the language of our law* politics* and social life* but they are the source of continual frustration. 9any things seem to be public and private at the same time in varying degrees or in different ways. As a result* we .uarrel endlessly about whether some act or institution is really one or the other. Ae .ualify the categories0 This group is .uasi1 public* that one is semi1private. n desperation some theorists announce that the distinction is outdated or so ideologically loaded that it ought to be discarded* or that it is a distinction without a difference. Met the terms can hardly be banished nor ought they.5 to speak intelligently about modern societies and politics without using the words public and private would be as great an achievement as writing a novel with the word "the." $owever* neither is necessarily the sort of achievement that other theorists or novelists would care to imitate. #.B. ?arasimha )ao brought in the revolutionary economic developments with the help of Dr. 9anmohan %ingh. The results of these reforms can be assessed statistically by comparing the total overseas investment in terms of portfolio investment* FD and investments from foreign e.uity capital markets. n +,,&1+,,:* it was H&.> billion as compared to H +>5 million in +,,+1+,,5. The highlights of the reforms including eradicating license ra4 for all except +; critical sectors for licensingN tempering the control on industriesN Foreign Technology AgreementsN FD R F N amendments of 9)T# Act* +,:,N DeregulationN )egulation of nflationN Tax restructuringN encouraging overseas business relations S++T. Few examples of privati!ation in ndia are @agan 7ute 9achinery 2ompany @imited* 9odern Food ndustries @imited* 37

"A@2E* $otel 2orporation of ndia @imited* $industan Finc @imited* #ara deep #hosphates @imited* "%?@ etc. These different contrasts between public and private lead to some Apparent conflicts in defining what lies on each side of the boundary. Ene such conflict concerns the location of the market. To an economist* the marketplace is .uintessentially private. "ut to a sociologist or anthropologist concerned with culture* the marketplace is .uintessentially public11a sphere open to utter strangers who nonetheless are able to understand the same rules and gestures in what may be a highly rituali!ed process of exchange. Ahile economists use the public1private distinction to signify the contrast between state and market* analysts of culture particularly those concerned with the roles and relations of men and women11take the public sphere to include the market as well as politics and contrast them both with the private domain of the family. n this sense* the public1private distinction is sometimes taken to mark out the contested boundaries of the male and female worlds11a usage that takes us back to the notion of the private as being more shielded from contact R view than the open encounters of public life. From these varying uses of the categories come several contrasting conceptions of the public sphere. The public sphere may be conceived of as the open and visible11the sphere of public life* public theater* the public marketplace* public sociability. The public sphere also may be conceived of as that which applies to the whole people or* as we say* the general public or the public 38

at large* in which case the public may consist of an aggregate or a mass who have no direct contact or social relation11the very opposite of a sphere of sociability. Er the public sphere may be conceived specifically as the domain circumscribed by the state* although exactly where to draw the stateKs boundaries may be difficult indeed. The general meanings of privati!ation* then* correspond to withdrawals from any of these variously conceived public spheres. $istorians and sociologists write about the withdrawal of affective interest and involvement from the sphere of public sociability. For example* in their work on the development of the modern family #eter Ailmot and 9ichael Moung argue that as the modern household became e.uipped with larger homes* private cars* televisions* and other resources* more time and capital came to be invested in the private interior of the family and less in public taverns* s.uares* and streets. %imilarly* )ichard %ennett suggests that since the eighteenth century modern society has seen a decline of public culture and sociability* a deadening of public life and public space* a privati!ation of emotion. %uch arguments shade into a second meaning of privati!ation0 a shift of individual involvements from the whole to the part11that is* from public action to private concerns11the kind of privati!ation that $irschman describes as one swing in a public1private cycle of individual action. n this sort of public1to1private transition* the swing is not from sociability to intimacy but from civic concern to the pursuit of self1interest. #rivati!ation can also signify another kind of withdrawal from the whole to the part0 an appropriation by an individual or a particular group of some good formerly available to the entire public or community. @ike 39

the withdrawal of involvement* privati!ation in the sense of private appropriation has obvious implications for the distribution of welfare. From these meanings it is but a short step to the sense of privati!ation as a withdrawal from the state* not of individual involvements* but of assets* functions* indeed entire institutions. #ublic policy is concerned with privati!ation at this level. "ut the two forms* the privati!ation of individual involvements and the privati!ation of social functions and assets* are certainly related* at least by ideological kinship. A confidence that pursuit of private gain serves the larger socisal order leads to approval for both self1interested behavior and private enterprise. Thus far have been talking about privati!ation as if both spheres* public and private* were already constituted. "ut in a longer perspective* their constitution and separation represent complementary processes. 9uch historical experience corresponds to %immelKs paradoxical dictum that "what is public becomes ever more public* and what is private becomes ever more private.KK; This is true specifically of the histories of the state and the family. The difference between patrimonial domination and modern bureaucracies* as Aeber describes the two* is precisely that in the patrimonial state public and private roles were mixed and in the modern state these roles are more clearly distinguished. The modern state distinguishes offices and persons. The office is public* and its files* rules* and finances are distinct from the personal possessions and character of individuals. As public administration and finance were separated from the household and personal wealth of the ruler* the modern state became* in effect more publicN the person and 40

family of the ruler* more private. That the domestic sphere has generally become more private is one of the classic themes of modern sociology and the history of the family. The rise of the liberal state specifically entailed a sharpening of the public1private distinction0 on the one hand* the privati!ing of religious and moral belief and practice and of economic activity formerly regulated by the stateN on the other* a commitment to public law and public political discussion. 2lassical liberalism is often represented as a purely privati!ing ideology* but liberals were committed to suppressing markets in votes* offices* and tax collection* not to mention human beings. %trengthening the public character of the state is continuity in liberal thought from its classical to contemporary phases. 9oreover* as %tephen $olmes argues* the liberal effort to privati!e otherwise rancorous religious differences promoted a civili!ed public order. %ome kinds of privati!ation are not the enemy of the public realm but its necessary support. n liberal democratic thought* public and private are central terms in the language of claims1making. n particular* they provide a deeply resonant vocabulary for making claims against the state. These are of two kinds. First* the concept of a public government implies an elaborate structure of rules limiting the exercise of state power. Those who wield power are to be held publicly accountable11that is* answerable to the citi!ens11for their performance.

41

8overnment decisions and deliberations must be publicly reported and open to general participation. n short* the citi!ens of a liberal state are understood to have a right to expect their government to be public not only in its ends but also in its processes. %econd* when the members of a liberal society think of their homes* businesses* churches* and myriad other forms of association as lying in a private sphere* they are claiming limits to the power of that democratic state. The limits are not absolute11 private property rights* for example* are not an insuperable barrier to public control or regulation11but when crossing from public to private the presumptions shift away from the state and any state intervention must meet more stringent tests of the public interest. #ublic and private in liberal thought have become pervasive dualities11or* perhaps better said* polarities11associated with the state in one direction* the individual in the other. ntermediate entities* such as corporations typically have been divided between the two categories. Dntil the nineteenth century in the Dnited %tates* there was no clear legal distinction between public and private corporations. nitially* cities were not sharply distinguished in the law from business enterpriseN but in the mid1+;66s cities became classified as agencies of the state* while business corporations came to be treated as individuals. As public agencies* cities were allowed only such powers as states delegated to themN as fictive individuals* private corporations came to en4oy rights protected by the 2onstitution.l> This bifurcation between powers and rights lies at the foundation of the contemporary legal distinction between the public and private sectors.

42

"ehind the legal categories* of course* the boundaries are blurred. En the one hand* private interests reach into the conduct of the state and its agenciesN on the other* the state reaches across the public1private boundary to regulate private contracts and the conduct of private corporations and other associations. Through tax preferences and credit guarantees* the state shapes private economic choices and relations. The state is imminent in the economy and society* but the degree of penetration varies* and the public1private system of classification is used to express these variations. %o* for example* among private corporations* we distinguish those that are privately held from those that are publicly traded and sub4ect to the regulations of the %ecurities and Exchange 2ommission. The latter are often called public corporations* by which we actually mean public private corporations. Among those public private corporations are some sub4ect to more extensive regulation* such as the utilities* which are especially public* public private corporations. And since the utilities* in turn* have some lines of business defined as public and others as private* the public1 private boundary runs within them as well as around them. t is as if* on finding two boxes labeled public and private* we were to open the private box and find two more boxes labeled public and private* which we would do again11and again11opening ever smaller boxes until we reached the individuals far inside* whom we could then split into respective offices and persons. 9oreover* if the boxes have been assembled by reasonably competent lawyers* they may be extremely intricate and some will have misleading labels.

43

"ut this complexity and the legal manipulation of the categories do not invalidate their usefulness or underlying meaning. To speak of a public corporation in the private sector ought really to be no more confusing than saying that ?orth 2arolina is in the %outh. #ublic and private give us relative locations. A further source of frustration with the public1private distinction is that the terms do not have consistent meanings from one institutional sphere to another. n the Dnited %tates* the difference between public and private schools is not the same as the difference between public and private television broadcasting. An American public school is public* not only in that it is state owned and financed* but also because it is open to all children of eligible age in its area. #rivate schools can re4ect applicants* but public school systems are denied that option. #ublic is too private* not only as state is to non state* but as open is too closed. $owever* in television broadcasting* the viewing public has open access to commercial as well as public channels. The difference lies in financing and programming. The public channels receive government support and do not choose programming to maximi!e audience ratings* though in fact even public broadcasting now competes for private corporate sponsorship* and some public stations are legally organi!ed as private nonprofit corporations. To make matters still more complicated* the differences between public and private institutions do not follow parallel lines in other countries. To take broadcasting again* public television or radio in the Dnited %tates is more dependent on private financing* less sub4ect to control by political authorities* and less the symbolic voice of the state than the state1owned networks of other Aestern nations* not to mention the %oviet bloc and Third Aorld. 44

To say public or private* therefore* is not sufficient to specify a form of organi!ation or even its relation to the state. 2onse.uently* it is extremely risky to generali!e about public versus private organi!ations11 and* therefore* about the merits of privati!ation as public policy11beyond a particular institutional or national context. ?o general theory about the performance of public versus private organi!ations is likely to succeed if it fails to distinguish among political systems and the structural variety of public and private institutions. #rivati!ation describes a direction of change* but it does not denote a specific origin or destination. ts meaning depends on the point of departure11the public1private balance previously struck in a particular domain. And it is a critical .uestion whether moving from public to private in the sense of state to non1state entails a movement in the other senses0 from open to closed 'in access to information( or from the whole to the part 'particularly in the distribution of benefits(.

F<T<RE PROSPECTS FOR INDIA

ndian economy is a dynamic economy that is showing tremendous potential of growth. 8lobali!ation* liberali!ation and privati!ation are the key strategic mandates for economic policies. 9arket oriented reforms are sustainable and are gaining acceptance with resistance to privati!ation going down due to the benefits like enhanced efficiency through target oriented management and disposition of public funds into social and physical infrastructure of the country.

45

#rivati!ation has shown great outcomes in the development of sectors like banking* insurance* telecom* power* civil aviation etc. $owever* the lobbying in domestic circuits was enfeebled by the surprising reversal of the ndian economy in present time. ndian economy registered an average growth of ;.& per cent in the past four years and it is Evidence enough to highlight the potential of privati!ation and its need and likelihoods of privati!ation.

H#. I($#%tan*e i! $%i&ati+ati#n in In,ia=

The first order issue is that of competition policy. Ahen the government hinders competition by blocking entry or FD * this is deeply damaging. Ence competitive conditions are ensured* there are* indeed* benefits from shifting labour and capital to more efficient hands through privati!ation* but this is a second order issue. The difficulties of governments that run businesses are well1known. #%Ds face little "market discipline". There is neither a fear of bankruptcy* nor are there incentives for efficiency and growth. The government is unable to obtain efficiency in utili!ing labour and capitalN hence the 8D# of the country is lowered to the extent that #%Ds control labour and capital. Ahen an industry has large #%Ds* which are able to sell at low prices because capital is free or because losses are reimbursed by periodic bailouts* investment in that entire industry is contaminated. This was the experience of 7apan* where the "!ombie firms" 1 loss1 making firms that were artificially rescued by the government 1

46

contaminated investment in their industries by charging low prices and forcing down the profit rate of the entire industry. Further* in many areas* the government faces conflicts of interest between a regulatory function and an ownership function. As an example* the 9inistry of #etroleum crafts policies which cater for the needs of government as owner* which often diverge from what is best for ndia. There is a fundamental loss of credibility when a government regulator faces #%Ds in its sector0 there is mistrust in the minds of private investors* who demand very high rates of return on e.uity in return for bearing regulatory risk. These arguments have led many economists to advocate large1scale privati!ation* so as to clear the slate* and get on with the task of building a mature market economy. The role model in this regard is 8ermany. After the collapse of communism and the unification of East and Aest 8ermany* an auction was held for selling off all East 8erman #%Ds. ?egative bids were permittedN i.e. the government was willing to even pay a private manager to take over a loss1making business if no higher bid was to be found. Through this* 8ermany was able to erase the heritage of socialism* and get on with the task of running an efficient market economy. Ahile such a game plan is entirely feasible in ndia* the present #arliament desires no privati!ation. Does this mean that in the immediate future* progress in economic policy on privati!ation must merely wait for the next electionsU 47

Ahen we look at various industries in ndia* the gains from privati!ation are .uite heterogeneous. n some cases* there are hopelessly loss1making #%Ds. These operate in industries where private and foreign firms have been able to come in* and the #%D has been left far behind the standards of .uality and price set by the private sector. The #%Ds should ideally have been sold off long ago* but today* these firms are irrelevant for the competitive dynamics of the industries that they operate in. The only issue is that of getting the land* the labour and some machinery out of public hands. Ahen privati!ation is achieved* ndia will benefit because the private buyer will produce more 8D# using the same resources* and the flow of budgetary support to these firms will cease. The government should be happy to get these firms out of its hands with negative bids. The next and most interesting category comprises industries like telecom and airlines. n these areas* ndia has witnessed the dramatic benefits that come from the entry of private players. Telecom and airline services in ndia are now dramatically improved* if not yet up to world1class* by changing rules in a way that permitted limited entry to domestic and foreign players. The privati!ation of B%?@ was critically important because it was part of the opening up of the @D sector to competition0 the government would arguably have been tardier in opening up if it had a vested interest through ownership of B%?@. $owever* the key innovation* which broke with the stasis of socialism* was opening up entry barriers 1 not privati!ation. 48

n both sectors* the full benefits from permitting foreign competitors* which are only present in much muted fashion* remain to be harnessed. Ahile %pice 4et is a good airline* there are bigger benefits waiting to be obtained by having domestic flights run by @ufthansa and %ingapore Airlines. n both sectors* the defining issue in policy is the removal of entry barriers* not privati!ation.

49

C3a$te% n#:-) ). PRI8ATI9ATION OF BANK

MEANING
#rivati!ation of banks refers to the action where government owned banks are sold to private institutions that can buy them. Ence sold* they become privately owned entities and are operated as per the guidance of the firm owning them. #rivati!ation has become popular measures for solving the organi!ational problems of government by reducing the role of the state and encouraging the growth of the private sector enterprises. $owever* privati!ation takes a number of forms and has been approached in various ways during the move away from government control to other forms of ownership in developing countries. n +,:,* on +, 7uly* an event of great political significance took place when the then government* headed by %mt. ndira 8andhi* nationali!ation +- ma4or ndian banks. En +&th April* +,;6* six more private banks were nationali!ed. "eginning 5nd Ectober* +,<&* +,: regional rural banks have been established in the country. After >+ years* the government of ndia introduced a bill in the public sector banks from existing Gnot less than &+I to >>I. This intent was no doubt in continuation of the process of liberali!ation of the banking industry that began in the early +,,6s. After the deregulation of interest rates* issuing of licenses to new private banks*

50

liberali!ing of branch licensing policy* even with recruitment policies of banks* it was natural to progress toward de1nationali!ation. #rivati!ation is a political process and has important economic and social implications that not only affect enterprise performance* but also social welfare and stability. The social effects have to be considered in any impact assessment* particularly those related to employment* social safety net measures* social privati!ation that results from the extension of share ownership to small investors and employees* and the role of public utilities and services in economic and social developments* including all forms of privati!ation* is clearly set in advance.

INTROD<CTION
All those banks where greater parts of stake or e.uity are held by the private shareholders and not by government are called Gprivate sector banks/. These are the ma4or players in the banking sectors as well as in expansion of the business activities ndia. The present private sector banks e.uipped with all kinds of contemporary innovations* monetary tools and techni.ues to handle the complexities are a result of the evolutionary process over two countries. They have highly developed organi!ational structure and are professionally managed. Thus they have grown faster and stronger since the very beginning of the banking system.

Hi!t#%2 #/ $%i&ate ban !

nitially* during +,5+* the private bank between +,:, and +,;6 there was rapid increase in the number of branches of the private banks. n April +,;6* they accounted for nearly +<.&I of bank branches in ndia. n ndia +,;6* after : more banks were nationali!ed* about branches were those of private sector banks. Then from the early +,,63s )" 3s 51

liberali!ation policy came in picture and with this the government gave licenses to a few private banks* which came banks like bank of "engal* bank of "ombay and bank of madras were in service* which all together formed imperial bank of ndia. )eserve bank of ndia cane in picture in +,>& and became the centre of every other banking away all the responsibilities and functions of imperial to be known as new private sector banks.

T3e%e a%e t.# *ate0#%i+e, #/ t3e $%i&ate !e*t#% ban !:

+( Eld 5( ?ew The old private sector banks have been operating since a long time and may be referred to those banks* which are in operation from before +,,+ and all those banks that have commenced there business after +,,+ are called as new private sector banks. $ousing development Finance 2orporation limited was the first private bank in ndia to receive license from )" as a part of the )" 3s liberali!ation policy of the banking sector* to set up a bank in the private sector banks in ndia.

Ol, $%i&ate !e*t#% ban !

The banks* which were not nationali!ed at the time of bank nationali!ation that took place during +,:, and +,;6* are known to be the old private sector. These were not nationali!ed* because of their small si!e and regional focus. 9ost of the old private sector banks are closely held by certain communities their 52

operations are mostly restricted to the areas in and around their place of origin.

4i!t #/ #l, $%i&ate !e*t#% ban !:1) Ban #/ P1n>ab ") Cat3#li* S2%ian ban ') Cit2 1ni#n ban )) D3anla?(i ban -) Fe,e%al ban @) ING &2!2a ban A) ;a((1 an, Ka!3(i% ban B) Ka%nata a ban 6) Ka%1% &2!2a ban

Ne. P%i&ate Se*t#% Ban !

The banks* which came in operation after +,,+* with the introduction of economic reforms and financial sector reforms called Gnew private sector banks/. "anking regulation act was then amended in +,,>* which permitted the entry of new private sector banks in the sector. $owever there were certain criteria set for the establishment of the new ndian banking private sector banks* some of these01 The bank should have a minimum net worth of )s. 566 crores. The promoters holding should be a minimum of 5&I of the paid up capital. Aithin > years of the starting of the operations* the bank should offer shares to pubic and their net worth must increased to >66 crores.

4i!t #/ t3e ne. $%i&ate !e*t#% ban !:1) A?i! ban ") Ban #/ P1n>ab 53

') De&el#$(ent *%e,it ban )) HDFC ban -) ICICI ban @) In,1l!an, ban A) K#ta Ma3in,%a ban B) Ye! ban

A,&anta0e! #/ $%i&ate ban in0

Aith private banking* you will develop a strong working relationship with your private banker. Eur private bankers draw upon a wealth of experience and expertise in areas such as commercial lending* retail banking* mortgage consulting and retirement plan administration* to name to few. %o together* we can help you define the services that fit your particular needs. Mour private banker will arrange timely* confidential and convenient access to a full range of personal and commercial financial services to help you achieve your current and long term goals. +( "anking simplicity. 5( Time savings. >( A powerful partnership. -( Access to special benefits.

Di!a,&anta0e! +( %urplus employees 5( ?o of branches in rural areas. >( Dnbalanced growth. -( 7obs for relatives.
54

&( Ewners association.

P%i&ati+ati#n #/ In,ian !e*t#% ban !

The ndian financial sector underwent a radical change during the nineties. From the relatively closed and regulated environment in which agents had to operate earlier* the sector was opened up as part of the efficiency enhancing structural policies to bring about high sustainable long term growth of the economy. The banking sector was also not an exception to this rule. ?ew measures were undertaken to induce efficiency and competition into the system. Accounting and provisioning norms* capital ade.uacy rules* and proper risk management process* partial were relaxed. t is believed that private ownership helps to improve efficiency and performance. Accordingly* the ndian government started diluting its e.uity in public sector banks from early +,,, in a phased manner* indicates the share of the governmentC)" and the private sector. $as the partial privati!ation of ndian banks really helped to improve their efficiency and financial performanceU nternational evidence on impact of privati!ation is mixed* though the issue is important in the ndian context. A healthy banking system* besides undertaking the role of financial intermediation also serves as an engine of growth ndian banking is presently in the process of completing one full circle. nitially* it was in private sector and moved to public sector with the nationali!ation of banks in two stages in +,:, and +,;6.

55

?ow with the proposal to reduce government3s stake in banks from &+ pc to >> pc* public sector banks are again moving in the direction of partial privati!ation.

The following may be the arguments for privati ation of ban!s in "n#ia$
+( #ublic sector ownership has an inherent handicap due to it being extremely diffused. This makes it less amenable to effective control by shareholders* compared to private ownership. a. "ank nationali!ation had given monopoly to the government in the banking industry. As in case of any monopoly situation* the .uality of service went down and the people suffered. b. %tate ownership of banks reduces competition and breeds inefficiency. c. There is no evidence to suggest that %tate ownership lowers the probability of banking crises. d. The sale of public e.uity of banks may be particularly lucrative now. Twelve of the 5< #%"s and +, private sector banks are listed on stock exchanges* and the market has appreciated their recent performance. 5( During the years 566+165 and 566516>* all #%"s declared high profits* with some banks reporting 566 to >66 per cent growth in their bottom1 lineV >( The bullish bond market enabled many banks to book record trading profits in trading in 8ovt* securities. Additional good cheer was the passage of the new Act* which enables banks to sei!e the assets of defaulting borrowers.

56

a. A sixth rationale for privati!ation is that it enhances efficiency and productivity through proper management and control. b. The competition* not merely ownership* is the key. And foreign competitors might bring additional benefits take fresh capital as shown in other emerging markets. A foreign owned bank* with large capitali!ation* can withstand local disturbances better. -( ;. The private sector and foreign banks can resist local government pressure to lend to favored sectors. &( ,. Fre.uent recapitali!ation of %tate1owned banks is a huge burden on the 8overnment budget. :( +6. The relative insensitivity of the public sector banking system to its cost structure* inability to respond .uickly to the changing market trends and the greater rigidities in the management decision1making processes because of what may be described as Knon1com1 metricalK considerations.

57

C3a$te% n#:--.ACIS BANK

Axis bank established in +,,> was the first of the new private sector banks to have begun operations in+,,- after the government of ndia allowed new private sector banks to be established. The bank was promoted 4ointly by the administrator of the Dnit trust of ndia 'DT 1+(* @ife nsurance 2orporation of ndia '@ 2( and 8eneral nsurance 2orporation of ndia '8 2( and other for #%D insurance companies* i.e. ?ational nsurance 2ompany @td.* The ?ew ndia Assurance 2ompany @td.* The Eriental nsurance 2ompany @td and Dnited ndia nsurance 2ompany @td.

58

The bank as on >6th 7une* 56++ is capitali!ed to the extent of )s.-++.;; crores with the public holding at&5.;<I. Erstwhile Dnit Trust of ndia was set up as a body corporate under the DT Act* +,:> was repealed with the passage of Dnit Trust of ndia* who manages assured return schemes along with :.<&I D%1:- bonds* :.:6I A)% bonds with a unit capital of over )s. +-+:<.&, crores. The bank registered office is at Ahmadabad and its central office is located at 9umbai. The bank has a very wide network of more than +5;+ branches. The bank has a network of over :5<6 AT9s providing 5hours a day banking convenience to its customer. This is one of the largest AT9s in the country. The bank has strengths in both retail and corporate banking and is committed to adopting the best industry practices internationally in order to achieve excellence. Axis bank entered a deal in ?ovember 56+6 to buy the investment banking and e.uities units of Enam securities for H-&: million. Axis securities* the e.uities arm of axis bank* will merge with the investment banking business of Enam securities. As per the deal* Enam will demerge its investment banking* institutional e.uities* retail e.uities and distribution of financial products* and non banking finance businesses and merge with them axis securities.

59

Ca$ital St%1*t1%e Pe%i#, In!t%1(ent A1t3#%i+e, I!!1e, Ca$ital Ca$ital F%#( T# DR!. *%) DR!. *%) 56+5 56++ 56+6 566, 566; 566< 566: 566& 566566> 5665 566+ 5666 +,,; +,,< +,,56+ > 56+ 5 56+ + 56+ 6 566 , 566 ; 566 < 566 : 566 & 566 566 > 566 5 566 + 566 6 +,, ; +,, & E.uity %hare E.uity %hare E.uity %hare E.uity %hare E.uity %hare E.uity %hare E.uity %hare E.uity %hare E.uity %hare E.uity %hare E.uity %hare E.uity %hare E.uity %hare E.uity %hare E.uity %hare E.uity %hare ;&6 &66 &66 &66 &66 &66 >66 >66 >66 >66 >66 5>6 5>6 5>6 >66 >66 -:<.,& -+>.5 -+6.&& -6&.+< >&,.6+ >&<.<+ 5;+.:> 5<;.:, 5<>.; 5>+.&; 5>6.+, +,+.;+ +>+., +>+., ++& ++&

-PAID<PS3a%e! DNOS) -:<,&--: ; -+>56>,& 5 -+6&-&;> -6&+<-++ , >&,66&++ ; >&<<6,:: , 5;+:>6<; < 5<;:,6<5 < 5<><,:-5>+&;6&< 6 5>6+;&&< , +,+;+5;< 6 +>+,6>+< 6 +>+,6>+< 6 ++&6666< 6 ++&6666< 6 Fa*e Ca$ital 8al1 e +6 -:<.,& +6 +6 +6 +6 +6 +6 +6 +6 +6 +6 +6 +6 +6 +6 +6 -+>.5 -+6.&& -6&.+< >&,.6+ >&<.<+ 5;+.:> 5<;.:, 5<>.; 5>+.&; 5>6.+, +,+.;+ +>+., +>+., ++& ++&

CAPITA4 STR<CT<RE OF ACIS BANK

60

Fa*ilitie! an, !e%&i*e! #//e%e, b2 a?i! ban

Axis banks its customer with all kinds of facilities that should be provided by a modern bank. t deals with personali!ed as well as commercial banking. t has one of the largest spread AT9 network in the country.

C#%$#%ate /a*ilitie!: 2ash credit Aorking capital demand loan Export finance %hort term loan Term loan 2lean bill discounting

@2 backed bill discounting 2o1acceptance of bills @etter of credit "ank guarantee %olvency certificates

Pe%!#nal /a*ilitie!: $ome loans #ersonal loans 2ar loans Fero balance loans B"B1 Enline purchases using credit card B"BC 9%21 Enline purchases using debit card 9obile banking ?) Account 61

 %tudy loans 9ohur gold

732 t3e2 *3an0e t3ei% na(e /%#( <TI t# A?i! ban

THERE ARE ' MAIN REASONS:+( They had to give up the DT name after using it for +> years as we were not prepared to accept terms and conditions from DT A92. 5( The decision to rebrand itself was taken by the bank as it was allowed to use the ODT 3 brand name for free till 7anuary >+* 566;* beyond which it had to pay royalty for using the name. >( The recommendation for name changed to axis bank has arisen from the existence of several shareholders1unrelated entities using the DT brand* and the conse.uent brand confusion that this generates. -( The name DT bank was changed to axis bank as DT gave a look of government sector bank. They had to change our name to have our own brand and identity.

Re*ent ,e&el#$(ent!
+( %hikha %harma was named as the bank3s managing director and

2EE on 56 April 566,. 5( As on the year ended march >+* 566, the bank had net profit of )s

+*;+&.>:crores

62

>(

The bank now has ;>& branches including extension network

across >6 states and - union territories. -( The bank also has overseas offices in %ingapore* china*

hongkonganddubai. &( :( <( 2rosses the >*<5> AT9 mark in 566,. @aunches platinum credit card* ndia3s first E9B chip based card.

Axis bank is now trading at )s,++.;& '+<th %ep(.

63

 Table #/ t3ei% %e!$#n!e t# ,i//e%ent E1e!ti#n!

F1e!ti#n!
1. D# 2#1 n#. .3at $%i&ati+ati#n i!= ". D# 2#1 /eel an2 *3an0e in ban !e%&i*e!= '. D# 2#1 n#. ab#1t ne. $%#,1*t! #/ t3e ban != ). D# 2#1 3a&e *#n/i,en*e #n ban !=

P#!iti&e E?t%e(el2 Ne0ati&e E?t%e(el2 $#!iti&e 'G AG 1HG ne0ati&e "HG

"G

-G

-G

1-G

AHG

@-G

-HG

)-G

"BG

'-G

"HG

IT:S IMPACT ON C<STOMER

"A sportsperson will not be able to compete in the international area and
bring laurels to the country if heCshe is not mentally tough*" chess grandmaster ).".)amesh told A?% here 9onday. The in1born personality trait will always get reflected in a personKs game and not vice versa. Any sports champion is really mentally tough. "ut getting panicky in a difficult situation is different. Ahen a rabid dog is about to bite a person* his first instinct will be to run and that does not mean he is not mentally tough*" )amesh added. 64

According to him* Axis "ank is trying to defend its mistake by casting aspersions on a noted sports personality. #allikal has sued Axis "ank for humiliation and loss of reputation after her debit card transaction did not go through despite having sufficient balance in her account at a )otterdam hotel in 56++. En learning about it* players from other countries made some bad remarks about her creditworthiness and also about ndia. Fortunately #allikal had D2" "ankKs debit card and paid the hotel with that. %oon after that incident* the Axis "ank did not credit #allikal account with the )s.+66* 666 che.ues she had deposited. The Axis "ank returned the che.ue to her with remark Wnot drawn on usK. The che.ue was issued by the ndian government for her achievement in the sporting arena and making the country proud. After a lot of communication* Axis "ank finally credited the amount* saying the instrument was returned due to technical error. Dpset at the callous attitude of Axis "ank* #allikal filed a case in the consumer court here in 56+5. n its affidavit* Axis "ank said0 "The very fact that the complainant is not able to take the slightest disturbance would prove that she lacks the re.uisite mental toughness of a world champion." The Axis "ank attributed the debit card transaction failure to an act of god.

65

Disputing the bankKs contention* psychological counselor "rinda 7ayaraman told A?%0 " n my view* the girl is very much resilient. %he has the mental toughness to use another bankKs card. There is nothing wrong for a young girl who is in a foreign country to call her mother and talk about a problem and get an advice." 2ommenting on the probable impact that Axis "ank might face because of the case* )aman 4am %ridhar* 2EE of "rand 2omm.* a brand consulting company* told A?% over phone0 "The biggest challenge will be due to the social media. $undreds of people will post their experience about Axis "ank and also with the other banks. t will have a ripple effect on the reputation of bank. $e wondered how Axis "ank headed by a woman '%hikha %harma( could treat an accomplished sports personality and a young girl like this. Axis "ank seems to have no idea as to what its customer is going through. t could have turned the adverse situation into a positive one but failed. The affidavit smacks of arrogance*" %ridhar remarked. Echoing him* %.%u4atha* a former Tamil ?adu womenKs chess champion* told A?%0 "$ow can a bank say that #allikal lacks mental toughnessU %he had the alertness to use D2" "ankKs debit card. A personKs basic characteristic will always get reflected in the game." t is a debit card and it should work. t is ridiculous for the bank to term its customer as lacking mental toughness*" %.%aro4a* coordinator* 2iti!en* 2onsumer and 2ivic Action 8roup '2A8(* told A?%. The 9umbai1based Axis "ank did not respond to calls and emails of A?%. 66

SO4<TION
To overcome these challenges* Axis "ank wanted a unified pro4ect management system that offered greater business analysis and planning capabilities. The bank determined that an E#9 solution would enable it not only to standardi!e and improve resource allocation and planning* but also to centrali!e all information relating to pro4ect management. t ultimately chose the 9icrosoft E#9 solution because it best met the re.uirements. The 9icrosoft E#9 solution includes 9icrosoft #ro4ect %erver 56+6* 9icrosoft #ro4ect #rofessional 56+6* and 9icrosoft %hare#oint %erver 56+6. The solution intelligently manages the entire pro4ect lifecycle. 2apabilities include work management* resource and investment management* portfolio optimi!ation* .uality management* and business intelligence reporting. GThe E#9 solution gives us what we need*/ says %ubhakanta %atpathy* %enior Bice #resident T and 2 E Axis "ank. G t also integrates with the user desktop logins./ #ro4ect %erver 56+6 provides innovative capabilities across the entire lifecycle to help effectively initiate* select* plan* schedule* and monitor the pro4ects for timelines and budget. t unifies pro4ect and portfolio management to help prioriti!e investments* align resources* and execute pro4ects efficiently and effectively. Ahat3s more* it brings together the business collaboration platform services of 9icrosoft %hare#oint %erver 56+6 with structured execution capabilities to provide flexible work management solutions.

67

CONC4<SION AND FINDINGS

Axis bank has differentiated itself very well on the basis of high level service and product .uality. They have successfully implemented the change and due to this their market share has increased only despite of tough competition prevails.

This study analy!es the impact of Oprivati!ation in the banks3 performance and efficiency using the ratios given in the performance highlights of "A. Ae calculated simple and combined means* standard deviations and co1efficient of variations and compared the financial performance and efficiency of partially privati!ed public sector banks in the pre1privati!ation and post1privati!ation period* partially privati!ed public sector banks with fully public sector banks and then with the banks already in the private sector. #rivate sector banks have been rapidly increasingly their presence in the recent times and offering a variety of newer services to the customers and posing a staff competition to the group of public sector banks.

The cases studies axis bank strongly support to the conclusion that privati!ation improves performance over continued state ownership* even the privati!ation of relatively poorly performing banks. $owever* several policies reduce the benefits0 +. 2ontinued state ownership* even of minority shares* harms the performances of privati!ed banks.

68

5. n week institutional environments share offerings produce lower performance gains than direct sales to concentrated strategic investors. >. #rohibiting foreigners from participating in privati!ation reduces the gains from both direct sales and % #.

69

F<ESTIONNAIRE
+( 5( >( -( &( n which year your bank get privati!edU Ahich are the facilities provided by private banksU Ahy privati!ation of bank is betterU s private banking much is demandU Ahat are the product R services provided by the private

bankU :( <( ;( ,( Ahat are new scheme provided by axis bankU Ahat is the response towards privati!ation of bankU Ahat is privati!ation of public sector banksU Ahat is the effect of privati!ation on bank performanceU

+6( $ow many branches are theirU

70

7EB4IOGRAPHY
7eb!ite!:....a?i!ban .*#( .....i i$e,ia.*#( ....0##0le.*#( ....%bi.#%0

BIB4IOGRAPHY
+( ndian banking by ).paramewaram 5( nnovation in banking and insurance by )omeo s. mascarenhas >( 9arketing in banking and insurance by )omeo s. mascarenhas -( ndian banking = past* present* and future &( "ank nationali!ation in ndia by s. natra4an :( ndian financial system and commerck.ial banking <( 9odern banking in ndia by L.2. %harma

71