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Modi Pledges India Banking Shake-Up

Modi Pledges India Banking Shake-UpModi Pledges India Banking Shake-Up

Narendra Modi, India’s prime minister, has moved to address worries about his flagging economic reform agenda with a pledge to shake-up India’s banking sector and the likely appointment of market-friendly economist Arvind Panagariya to head a government think-tank.

Modi endured a frustrating end to 2014 as parliamentary deadlock stymied major legislation, prompting his administration to pass temporary ordinances in areas such as helping businesses to purchase land for development projects, CNBC reported Monday.

To regain momentum, Modi this weekend pledged to give greater independence to struggling public sector lenders, while tempting global investors to participate in plans to raise Rs1.6 trillion ($26 billion) by selling down government bank stakes.

Speaking at a summit of the heads of all of India’s public sector financial institutions, Modi promised to end the country’s heritage of “lazy banking”, a term often used to criticize risk-averse lenders.

Addressing concerns that banks face political pressure to give loans to favored companies, Modi said lenders “would be run professionally” in future, and promised “no interference” from New Delhi.

Jayant Sinha, minister of state for finance, said that the moves were “a very important step” to repair the banking sector, which must raise an estimated $50 billion to meet new capital rules over the next four years while also reversing recent increases in bad loans.

“To bring everyone together at this event, and to ask all of India’s banking system to look seriously at bold structural reforms, is an unprecedented move,” Sinha said.

India is now likely to bring forward measures to increase the autonomy of bank boards, ensure the independence of senior appointments, and introduce market-linked pay for bank executives.

The banking reforms come in advance of the likely appointment this week of Panagariya, a widely respected and liberally-minded economist, to lead the government think-tank set up to replace India’s Soviet-era planning commission.

In August, Modi scrapped the planning commission, which had guided India’s economic development for six decades through the publication of weighty five-year plans. He accused the body of excessive centralization, obstructing the plans of state-level governments.

 

Financialtribune.com