Abstract
Due to the extremely necessary COVID lockdowns, the Indian economy was impacted more than any other emerging economies, the quarter to quarter economic growth in the first quarter of 2020–2021 was negative 23.9 %. To revive the economy, the Government of India adopted many fiscal and monetary policies. In their effort to recuperate the economy, the financial instruments that were undertaken seemed more expansive than the direct cash transfers schemes launched to revive the demand side of the economy. Furious debates broke out among economists about whether the economic policies which primarily focused on the power of the banking sector were enough to revive the Indian economy. India Banking and Finance Report 2021 (IBFR 2021), edited by Parth Ray, Arindam Bandopadhyay and Sanjay Basu, published in May 2022 by SAGE Publication, precisely answers those questions. Though the relationship between the financial sector and the entire industry is one of the contentious issues amongst macroeconomic experts, there is no doubt that they affect each other immensely and often go hand in hand.
The first chapter of the IBFR 2021, called ‘Macro-Financial Perspectives on the Indian Economy’, written by G. Nagaraju and Partha Ray, answers questions such as how long it will take for the Indian economy to go back to its pre-pandemic level? Is the current situation a good example of the disconnect between the financial and real sectors?
This chapter aptly sums up the role of the banking sector in India’s recovery story. It also provides a global perspective on how emerging market and developing economies have fared compared to advanced economies, the European Union, and emerging and developing Asian countries. It provides insights into the cause of recent inflation and growth trends in India. It says that the recovery process was fuelled by both the GOI and the Reserve Bank of India as part of policy action to fight the COVID-19 pandemic. This chapter also provides a proper analysis of the fiscal and monetary policy adopted to fight the downturn. The fiscal policies were targeted to address the problems faced by the lower economic households, such as Jan Dhan Yojana. In contrast, monetary policies were targeted to revive the financial sectors. The authors suggest that though the effect of these policies seems to be positive and has helped the Indian economy revive, it has resulted in an upward trend in inflation almost all over the world. At the end of the last quarter of the fiscal year 2021–2022, another shock that affected the inflation indexes is the Russian–Ukrainian war. The final effect of this current scenario is yet to materialize. The article provides the reader with a macroeconomic perspective of the current Indian economy.
The chapter titled ‘Bank Boards and Corporate Governance in India’, written by Anjan Roy and Kaushik Mukherjee, skilfully sums up the board-level factors as determinants of bank financial and governance performances. It describes the challenge of corporate governance in banks and, more particularly, the history of the evolution of corporate governance practices in India using a mixed-method study. They also point out the likely reasons for governance failures in banks as in recent years, multiple banks have come under detailed scrutiny for failing to comply with regulatory directions during the asset-building process. Those cases have attracted penalties from RBI and SEBI, which were levied for failing to make required disclosures on insider trading, wrongful selling of bonds, improper evaluation of stakes and engaging in conflict of interest deals. In this context, this chapter establishes a significant correlation between the board’s actions in banks towards ensuring higher standards of corporate governance. It establishes that representation of all the stakeholders’ matters, and the diversity of membership provides a broad range of perspectives that are instrumental for making sustainable and prudent decisions. The involvement of an independent board of directors in strategic decision making is important to exercise influence on the executive management of the banks. It welcomes the recent guidelines and steps taken by the RBI to enhance the corporate governance of the banks.
Dipali Krishnakumar and Richa Verma Bajaj, in their article titled ‘Mergers and Acquisitions in Indian Banking Industry’ skilfully narrate the history of mergers and acquisitions (M&A) in India from 1985 to 2020. They said that M&A in the banking industry had been driven by the goal to strengthen and consolidate the Indian banking system. Though around the world, M&As have been organized with the primary motive of cost-saving, scale-efficiency, increasing market power, and disciplining ineffective management, in the case of India, the major reason was attaining financial stability or rescuing banks and financial institutions facing financial troubles. This chapter examines the effect of M&As on the stock market reaction and post-acquisition operating performance of these M&A deals. They establish that the market perceives these deals negatively, particularly distress and consolidation deals through voluntary deals generate mixed reactions. Operating performance is positive as business per employee increases significantly after the merger, which is true for both public and private banks. They also show the effect of M&As on capital adequacy, reduction in debt and GNPA ratio.
B. Ashok and Shomi Shrivastava, in their article ‘Leading Through Disruptions: A Distributed Leadership Model for Banks in India’, explore possible new approaches to changing the leadership DNA of banks so that the twin objectives of resilience and growth are achieved and provide distributive leadership (DL) as a possible alternative to the existing models. They offer an excellent snapshot of the organizational structure of banks. They have said that DL if implemented through a well-designed and structured approach, will prove to be a transformational strategy. To support their alternative strategy, they provide extremely nuanced arguments with the help of a leadership perception survey.
Tasneem Chherawala informs the reader of the background behind the establishment of India’s first centralized Bad Bank called National Asset Reconstruction Company Limited (NARCL) and India Debt Resolution Company Ltd (IDRCL) in her article titled ‘India’s Bad Bank: Opportunities and Challenges’. These institutions were created by the government to acquire bad debts of Indian public and private sector banks. To relieve them from the large NPLs so that banks can refocus their resources to meet the larger objective of nation-building and support the economic recovery needed at this moment. She welcomes the creation of bad banks, and she opines that this move has proven the government’s commitment to strengthening the banking sector and facilitating economic recovery. She said that ‘the structure of the NARCL–IDRCL has been designed with careful consideration of global experience with respect to ownership, asset aggregation, transfer pricing, operations and debt resolution mandate. If the bad bank performs as expected, it will ensure significant benefits for multiple stakeholders’.
In conclusion, it can be said that India Banking and Finance Report 2021 (IBFR 2021) provides a clear picture of the Indian banking industry and the transformations it has gone through in the last two decades. It informs the reader of the structure, leadership policy, mergers & acquisitions, consolidations, forming of ban banks, policies undertaken by the RBI to fraud management and monetary policy instruments undertaken by the RBI to mitigate the pandemic effects. The article by Arindam Bandopadhyay and Sanjay Basu also provides a risk management perspective of the banking sector and other financial institutions in the reality of climate change. It seems the editors of the volume have carefully chosen each article to represent different facets of the banking industry and aptly provide a snap shot of the sector. It would be really helpful for researchers who are working on the banking industry as well as for people involved in higher studies. The language used in the book is extremely fluid and capable of holding the readers’ attention. It is highly recommended for all those who are interested in learning about the banking and financial industry in detail.