Cover Story
Chinese
Banks : On the Reforms Path --Katuri
Nageswara Rao
The
fourth generation leaders of China to whom political
power has been transferred during October 2002 have
endorsed the socialist market economy model, paving
the way for private enterprises to co-exist with public
sector companies. They have realized that China, a nation
of over 1.3 billion people, has strong economic fundamentals
in the form of fast GDP growth, substantial foreign
direct investment, cheap labor, a stable and strong
domestic currency and low government debt. However,
the banking system suffers from many infirmities, like
mounting NPAs, behest lending, unsophisticated procedures,
lack of competition, protected environment, primitive
stage of computerization and absence of sound risk management,
corporate governance, transparency, and accounting standards.
While banking reforms have been initiated back in 1978,
the progress so far has been very slow. With China's
entry into the WTO fold, Chinese banks have to gear
up to face competition from foreign banks, who will
be entering China shortly.
© IUP. All Rights Reserved.
Chinese
Banks : Bank of China --Katuri
Nageswara Rao
Bank
of China is a major government bank with strong forex
operations. It proposes to strengthen its operations
in insurance, investment banking and forex business
to become a leading international bank. It has been
strengthening risk management and corporate governance
functions, besides computerization level.
© IUP. All Rights Reserved.
Banking
Scenario
Balance
Sheets of Banks : When Measures Match --
Mohan R Lavi
The
Institute of Chartered Accountants of India (ICAI) issues
Accounting Standards (ASs), while RBI provides accounting
guidelines for banks. On many occasions there are conflicts
of opinions between these two bodies. The differences
are in areas like asset liability management, prior
period income accounting, provisions for retirement
benefits, segment reporting and accounting for taxes
on income etc.
RBI
is contemplating introducing certain provisions of the
SOA (Sarbanes-Oxley Act). Presently, there are concurrent
audit, RBI audit, stock audit and annual audit for banks.
If so much of regulations cannot detect a loophole,
invoking of a few provisions of SOA may not. It would
be a better idea to supplement the current regulation
with more vital and timely information.
©
Business Line, April 17, 2003. Reprinted with permission.
Originally published as "When Measures Match."
ICICI
Bank : Runaway Fiery --Uday
Chatterjee
In
the recent past, ICICI Bank has experienced large-scale
withdrawals in Gujarat and Maharashtra. The bank has
appointed a retired chief justice of the Supreme Court
to conduct an inquiry to find out the reasons for this
mysterious run on the bank, though short-lived. A local
Gujarat newspaper story on April 11, 2003, that ICICI
Bank had huge exposure to Infosys and other IT stocks,
which tumbled down a few days earlier, due to which
the bank was likely to go bankrupt, appears to be the
reason for the mini run on the bank. Limited storage
capacity of the ATMs than that of a currency chest might
have added to panic withdrawal.
©
www.domain-b.com, April 20, 2003. Reprinted with permission.
Originally published as "Runaway Fiery."
Credit
Mangement
Wholesale
Banking : Lend is the Word --Business
India Editorial Team
A lot of changes took place in the last 25 years in
the Indian banking industry. Earlier, banks were lending
mainly to corporates and against tangible security.
Innovative products of 1980s, like commercial paper,
foreign exchange transactions, loans against receivables,
securitization, are now vital for the survival of banks.
Banks today are launching innovative products with the
help of innovative technology to compete in the retail
and corporate market. While the share of retail banking
is increasing, wholesale banking is still a major chunk
of banking business.
©
Business India, April 14-27, 2003. Reprinted with permission.
Originally published as "Lend is the Word."
Risk
Mangement
Leveraged
Funding : Who Moved My Cheese? --
S Ravi
Foreign
Currency Non-Resident (FCNR) and Non-Resident External
(NRE) deposits have been increasing with all banks.
With the differential interest rates between Indian
market and overseas market, there are opportunities
for covered interest rate arbitrage for the NRIs. Onshore
and offshore banks will be benefitted from cost-effectve
long-term funds. However, there are risks for the onshore
banks in the form of possible asset liability mismatch,
inability to effect timely swaps etc., but offshore
banking units and NRIs don't run any risk.
©
S Ravi. The article was first published in The Economic
Times, May 6, 2003. Reprinted with permission
Reserve
Bank of India : Squeamish on Derivatives --
AV Rajwade
The
Reserve Bank of India (RBI) proposes to introduce exchange
trading futures contracts primarily as a hedging instrument.
This restriction, limiting the purpose and scope, could
render the move of RBI ineffective and even counterproductive.
If RBI fears that short selling could appear in the
futures markets then it should prefer not to introduce
this product rather than subject it to restricted use.
Exchange trading contracts involving cash settlements
do not add to the credit risk of the counter party.
Even if the exchange trading market is used for trading
on interest rate movements, it should not be curbed,
as speculation is part of any derivative market mechanism.
Indeed, the systemic risk could remain relatively unchanged
due to the `hedging only policy' of RBI. In fact, the
proposed capital charge for positions in the futures
market is also not justified.
©
Business Standard, May 12, 2003. Reprinted with permission.
Originally published as "Squeamish on Derivatives."
Banking
Regulations
ARCs'
Registration and Operational Guidelines : Is It Skid
Proof ? --
Carlton Pereira
RBI
has recently issued the final guidelines regarding the
registrations and operations of ARCs (Asset Reconstruction
Companies). This article seeks to analyze the implications
of these guidelines for banks and FIs regarding formation
of an ARC, acquisition of NPAs by ARCs, financing the
NPA portfolios acquired by ARC and recovery of NPAs
by ARCs etc. There are some negative implications like
difficulty in raising money by ARCs and conforming to
the principle of true sale value of the assets etc.
These issues impact the QIB (Qualified Institutional
Buyers) that would invest in security receipts issued
by ARCs.
A
number of economic and regulatory hazards arise in the
reconstruction of stressed loan assets. A more flexible
regulatory environment would speed up the process.
©
Carlton Pereira. The article was originally published
in The Economic Times, May 6, 2003. Reprinted with permission.
Bank
scan
HDFC
Bank --
Yash Paul Pahuja
With
the aim of becoming a world-class Indian bank, HDFC
Bank has been making rapid progress. Its business philosophy
is based on values like operational excellence, customer
focus, product leadership and people. In the face of
extensive competition from major rivals like ICICI Bank
and SBI, the bank has been able to grow in business
volumes and revenues in all its three business segmentswholesale
banking, treasury and retail bankingbut maintaining
this position isn't without challenges. Though competition
between banks in future will be based on twin platformstechnology
savviness and ability to attract talentHDFC Bank is
gaining its mileage in both areas quickly and efficiently
than its major rivals.
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