| The CAC report has favoured industrial houses having stakes in Indian banks or promote new banks. What's the rationale behind this? |
| If the banking system is to be opened to overseas players in 2009, the sector should be adequately well capitalised. Most public sector banks are dependent on the government for funds. |
| The government is neither keen to dilute its shareholding to less than 51 per cent nor is in a position to provide funds to all. There is no harm in using the surplus capital with the corporate in promoting banks. |
| There is a difference between owning a bank and promoting it. For instance, HDFC bank is promoted by HDFC but the chairman of HDFC does not sit on the board. |
| The RBI can limit the stakeholding by a corporate and there could be norms restricting exposure of a bank to the industrial house that has promoted it. Similarly, there could be regulation on the composition of boards to avoid conflict of interest. |
| Why is the panel against dilution of RBI stake in State Bank of India in favour of the government? |
| The dilution is not favourable as the government is not interested in bringing in more funds. The RBI can continue to hold the shares and bring in the required funds. The RBI has given professional autonomy to the bank and helped SBI emerge as one of the better managed banks in India. |
| This may not be the case if the ownership changes hand. |
| The dissent note put up by some committee member have made it clear that there is no data to show that participatory notes are not legitimate funds.... |
| There is also no data to show that these are (legitimate funds). In fact, when there is registered route of foreign institutional investors (FIIs), we always question who is interested in bringing in money in the capital market without disclosing his identity? |
| At a time, when the entire global financial system has been clamouring for better disclosure norms and adherence to the "know your customer" guidelines , why should these instruments be allowed? |
| The committee has even recommended that non- resident Indians (NRIs) in their individual capacity could invest in the market but after establishing their credentials under the "know your customer" norms. |
| The committee has suggested revising the issue of investments by foreign banks. Could you please elaborate? |
| If a foreign bank is setting up a subsidiary to operate in India, it is not an issue. The matter becomes critical when a foreign bank acquires a stake in an India bank and the acquisition is not for pure investment but for securing a controlling stake. |
| The high level committee of government and RBI needs to work out guidelines to check that the foreign banks are not manipulating the business model for their own interest since it is an established fact that they focus on the creamy layer of the population. |
| This is not the objective of allowing foreign participation in the banking system. What is required is capital support to make banking more accessible to all sections of the society. |
| Therefore, even after the merger, there should be checks and balances to ensure that the banks are free to choose their own business model and client base. |
| The voting rights resulting from the new ownership of the bank needs to be controlled and each banking entity should be allowed to run independently. |
| There has been a slew of recommendations for developing the corporate debt market. What more needs to be done? |
| There is a host of things which are basic and need to be done on a priority basis. Some of these relate to simplification of guidelines for bond issues, consolidation of the existing debt among others. |
| These will impart liquidity to the market. The CAC committee feels there could be greater participation of FIIs in corporate debt market by linking the limits of investment to total number of issuances instead of capping it at an absolute number. |
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