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Bank Management

Arguments in favour of nationalisation


Freeing the banks from private ownership and control Distribution of credit according to plan priorities Promotion of banking facilities to rural and unbanked areas. Greater mobilisation of deposits Reducing the imperfection in the money market.

Performance of nationalised banks


Branch expansion Expansion of rural branches Reduction in population per bank office Deposit mobilisation Priority sector lending. Increase in Bank credit. Involvement in Development efforts Diversification of banking functions

Weaknesses of nationalised banks


Insufficient Banking facilities Declining credit deposit ratio Small profits Growing Non-performing Assets

Arguments in support of privatisation


Commercial banks would get greater freedom in taking proper credit decisions. The non interest income in these banks can be increased. It would be possible for these banks to put in greater efforts to attract deposits by designing innovative deposit schemes. It would create a competitive environment in the banking sector. It would also prepare Indian banks for international operations.

Unnecessary political and administrative intervention in the lending operations of the commercial banks can be avoided to a large extent. The use of modernised techniques would improve their information network. Keeping in view the size, expertise and sustained viability in the financial sector, the management and shareholders of the banks and other DFIs may explore some gainful methods of merger between banks and DFIs.

One of the cherished goals is to implement capital account convertibility as recommended by tarapore committee. POSITIVE IMPACTS OF PRIVATISATION-- A competitive environment will be created in the banking sector. Greater autonomy in the decision making power will help the banks to take prudent decisions. The banking operations can be tuned to the global changes in the financial market.

Better portfolio management on the part of the banks through proper diversification of investment in shares and debentures. NEGATIVE IMPACT OF PRIVATISATION-- The private sector banks would give more stress on profitability and they would be less interested in extending credit to small farmers, small businessmen etc. In the drive to reduce the operating expenses, the private banks would use more computers and ATMs. As a result employment opportunities will decline.

If some of the banks are merged with foreign banks ,and if restrictions are removed on flow of foreign capital from one country to another then there will be no guarantee that funds mobilised from Indian economy would be recycled in India.

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