politics for the 99%

Published on Global Research.ca, by Kavaljit Singh, Oct 29, 2013.

On October 12, Raghuram Rajan, the new Governor of the Reserve Bank of India, announced that the RBI will soon issue new rules allowing a more liberal entry of foreign banks in India. “That is going to be a big opening because one could even contemplate taking over Indian banks, small Indian banks and so on,” he stated in Washington at an event organized by the Institute of International Finance, a global banking lobby group. 

The announcement of a reversal of long-standing regulatory policy for banking at an event organized by a lobby group is questionable as the wider developmental and regulatory concerns related to a liberalized entry of foreign banks are yet to be discussed in Parliament.

In the Indian context, the key policy issue is — do the benefits of foreign bank entry greatly outweigh the potential costs? Foreign banks have been operating in India for the past many decades and yet we find no evidence of the widely held notion that foreign banks add to domestic competition, increase access to financial services and ensure greater financial stability in the host countries. As witnessed during the global financial crisis of 2008, foreign banks reduced their domestic lending in India by as much as 20 per cent whereas the state-owned banks played a counter-cyclical role during the crisis.

Are Foreign Banks Discriminated in India? … //

… Where is Reciprocity in Market Access?

If India opens up its banking sector, how much market access Indian banks will get in return? The recent experience shows that market access to Indian banks is far from satisfactory. During 2003-07, India allowed US-based banks to open 19 branches (excluding the off-site ATMs). But, in the same period, the US did not allow a single Indian bank to open a branch or subsidiary or representative office in its territory despite many requests made by public and private sector banks.

Under the India-Singapore Comprehensive Economic Cooperation Agreement (2005), the RBI allowed market access to three Singaporean banks as per the agreement but the Monetary Authority of Singapore refused to fulfill its time-bound commitment for providing full bank license (Qualifying Full Bank status) to three Indian banks. The MAS had imposed higher qualifying standards in the form of Asset Management Ratio on the Indian banks compared to other international banks operating in Singapore. Whereas the RBI does not discriminate between foreign and domestic banks on prudential and regulatory norms.

The Urban-centric Foreign Banks: … //

… The Niche Banking Model: … //

… Financial Inclusion or Exclusion? … //

… Learning from International Experiences:

Research studies conducted jointly by SOMO and Madhyam (available at www.madhyam.org.in) on the impact of banking sector liberalization in South Korea and Uganda offer several important policy lessons. In South Korea, foreign bank played an eminent role in building of short-term foreign borrowings which induced financial fragility and risks in the Korean banking sector before and after the 2008 financial crisis.

In Uganda, a rapid entry of foreign banks through acquisitions and takeovers has led to a situation where rural areas remain under-banked and the bulk of bank credit goes to trade. With foreign banks controlling 87 percent of Uganda’s banking assets, the rural households in Uganda are largely dependent on informal sources of finance to meet their consumption and investment needs.

In many Latin American countries such as Brazil, Mexico and Chile, there was a considerable decline in competition in the aftermath of liberal entry of foreign banks.

The global financial crisis has put a big question mark about the efficiency, “best practices” and state-of-the-art risk management models of big international banks.

The crisis has shown how many big international banks transmitted financial shocks across countries.

Several banks (including HSBC, UBS and Credit Suisse) have recently paid billions of dollars in fines for their alleged role in Libor rate-fixing scandal, money laundering and other corrupt practices. The JPMorgan Chase has been associated with several trading scandals in the recent past and has agreed to pay $5.1 billion to settle claims that it sold bad mortgages to two government agencies of the US (Fannie Mae and Freddie Mac) ahead of the financial crisis. According to media reports, JPMorgan may end up paying as much as $13 billion to settle all the pending claims over its reckless trading and market manipulative practices. Should India give such banks a free run?

Finally, we should not forget that the Indian banking system has remained insulated from global turmoil thanks to a limited presence of foreign banks, enlarged state ownership of the banking system, and a relatively strong regulatory framework.

(full text).

(Kavaljit Singh is Director of Madhyam.org [a policy research institute based in New Delhi], About, Events, Publications, Address and Contact).

Links:

Cutting Food Stamps for Over 45 Million Americans: The Ruthlessness of the American Ruling Class, on Global Research.ca (first on WSWS), by Andre Damon and Barry Grrey, October 29, 2013; October 29, 2013;

Remembering WWI: German Hopes for Centenary May Be Dashed, on Spiegel Online International, by David Crossland  in Ypres, Belgium, Oct 29, 2013 (15 Photo in the Gallery: Europe Prepares for 100th Anniversary of WWI). Germany sees the World War I centenary as a chance to promote European integration and arrive at a shared remembrance of the disaster. But that may be too ambitious. For many countries, remembering the war is likely to remain a national affair.
Tyne Cot is the largest British and Commonwealth war cemetery, with 11,956 graves, 8,369 of them unidentified. Many of the men here were killed in the rain-soaked Battle of Passchendaele in 1917, when the area around Ypres was churned into a stinking swamp, and wounded men who slipped off duckboards vanished into the sucking mud …;

Himalayan Hotbed: Tensions Spike in Divided Kashmir, on Spiegel Online International, by Wieland Wagner, Oct 29, 2013 (Photo Gallery: Kashmir’s Fortress of Anxiety): Violence is on the rise in Kashmir. Indian and Pakistani units are clashing in border skirmishes, and government soldiers are ruthlessly suppressing separatists. The real victims are the civilians caught in the middle …, Map of Kashmir;

NSA Scandal: (german) Parliamentary Spying Inquiry Poses Challenges, on Spiegel Online International, by Veit Medick and Annett Meiritz, Oct 29, 2013: New details continue to emerge over alleged US spying in Germany. A parliamentary investigation could provide clarity – but it also has limitations. The issue constitutes the first stress test for a future coalition government … // … All participants know that such an investigatory committee would be unprecedented in that it would be dealing with the fundamental problems of the digital age … // … The possible committee’s third problem relates to its limited means. In the digital age, surveillance is not something that necessarily takes place within defined national boundaries, but the committee’s resources would be directly influenced by these borders.
For example, the committee won’t be in a position to subpoena witnesses from the United States, or NSA files and White House documents, leaving them without many key pieces of the puzzle. Instead, the panel will be forced to limit itself to questions related to happenings within Germany itself. Having Edward Snowden testify would also be illuminating, but the possibility is unrealistic. What’s more, witnesses might refrain from providing public testimony if they believe that doing so could harm Germany’s security. Indeed, one can always cite this argument and use it as a pretext when refusing to provide details about the security-service operations …;

The global NSA spying scandal, on World Socialist Web Site WSWS, by Joseph Kishore, Oct 30, 2013.