Sucheta Dalal :Inside view
Sucheta Dalal

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Inside view  

Nov 8, 2004

The debate over bank ownership, especially rules governing foreign banks’ investments have exposed a rift between views of the central bank and the finance ministry. The nature and role of banking has shifted in line with changing policies and the pressure to integrate Indian regulation with global systems. One group that is increasingly confused about the role of nationalised banks in the later half of the 1990s and the rapid change in direction after 2000 are bank officers who are expected to carry forward these changed policies. For instance, the Corporation Bank Officers’ Organisation says, ‘‘While the government exhorts its commitments to developing agriculture/rural industries at various fora, there is no administrative will to implement these policies.’’ The AIBOC has decided it doesn’t want to rely on official committees but will make its own assessment. It has set up what it calls the ‘‘Independent Commission on Banking & Financial Policies,’’ headed by former Finance Secretary S.P. Shukla to study the implications of policy prescriptions and popular rhetoric. For instance, it will look at whether bank mergers, which are being encouraged by the government, serve the larger public interest. Simultaneously, the AIBEA is studying the many failures of private banks and the implications of failed supervision and forced mergers with nationalised banks. It would be easy to dismiss the initiatives as Leftist attempts at trouble making, except that both organisations have plenty of examples of failed supervision, confused policy and unclear direction to warrant their action.

Buried scrap

It takes less than a week these days to bury a major scandal. Remember the rockets and live ammunition found in steel scrap imported into India from the war zones of Iran? When government agencies discovered explosives and shells around the country, the media coverage threatened to convert it into a long-running scandal. The Commerce Ministry reacted by putting in place long overdue rules regarding certification and origination. The company has smoothly put the damage behind it. Its credit rating is unaffected and bankers are set to help it achieve financial closure on the Rs 3,000 crore integrated steel project planned in Orissa. The investigation into grey market for explosives entering the country as steel scrap seems headed for a quiet burial.

Doubly galling

The Reliance group blundered badly when it didn’t bid high enough for VSNL when it was privatised. Although the company put on a brave front, insiders say that Reliance have even negotiated some infrastructure sharing arrangements with the former monopoly to give its telecom venture a turbo push. Since then, Reliance bagged Flag Telecom’s worldwide network and bandwidth in January 2004, but has struggled on several other fronts. It still cannot get its billing right, its call centers make ludicrous payment demands, its recent row with BSNL has tarred its reputation and over a year after it wired up cities like Mumbai, it hasn’t been able to introduce broadband. The consolation was that rival Tata empire had its share of controversy over attempting to divert VSNL’s reserves and its service standards. Ratan Tata has also made it clear that VSNL was hardly the catch it was touted to be. Yet, there was an edge to the bidding when both groups competed for Tyco International’s 60,000-km undersea fibre optic global telecommunications network. Not only did Reliance call wrong again, but the Tatas seem set to race ahead with a far lower telecom investment.

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-- Sucheta Dalal