And you thought the Volcker Rule was bad. The Indian government is reportedly considering forcing the country’s public sector banks to exit non-core businesses.
The thinking, circulated in a Finance Ministry proposal, is that things like insurance are often loss-making, and banks should be using government-given funds for basic lending.
The Indian government, for those who don’t follow South Asian finances, is committed to giving the banks RS165bn in the in fiscal year 2011, according to the Mumbai-based team of investment bank Execution Nobel, and expects to give them RS380bn over the next two years.
Here’s what the team had to say about the report:
Banks are an important conduit for the expansion of broader financial services including insurance by leveraging their extensive branch network. Besides cross selling of a range of financial products increases banking depth with existing customers apart from providing a cushion of fee income to banks unaffected by cyclical downturns. The limited avenue through which existing regulations allow such activities minimizes risks to banks anyway. Overall, a regressive measure for the Government’s own inability to fund PSBs due to fiscal constraint. The move also casts doubts on the existing arrangement of joint ventures with foreign players of PSBs in non-core businesses, besides clipping their ambition to emerge as universal banks.
The big UB — that’s really why this is of interest.
The debate over the universal bank model is cropping up in many places, with shades (or eye-catching colours) of it evident in the US proposal to eliminate proprietary trading at deposit-taking banks — something very reminiscent of a return to Glass-Steagall.
More obviously, Nigeria’s central bank decided to stop issuing universal bank licenses earlier this week.
Banks that already have them will have to get rid of ‘em.
Related links:
Volcker’s axe is not enough to cut the banks down to size – Martin Wolf, FT
Barclays head stands up for big banks – FT
The bank problem in a single chart – FT Alphaville