TITLE PAGE

Course Code : ECO113 Course Title : Business Ecomics

Course Instructor : Dr. Maninder Singh

Academic Task No : 1 Academic Task Title : “ Can Privatization of Indian Financial

market create a stable and profitable
Funding system ”

Date of Allotment : 22/10/2020 Date of Submission : 31/10/2020

Student's Section :QOC03

Student's Roll no : 22 Student's Reg. No : 12017906

Learning outcome :Understand and broaden knowledge about indian financial world. To create optimistic and pragmatic
vision of economics.
 Declaration

I declare that the assignment is my work. I have not copied it from any other student's work or from any other sorce except
where due acknowledgement is made explicitly in the text, nor has any part been written for me by any other person.

Student's signature:`Richard Mishra

Evaluator's Comments (For Instrument's use only) :

Evaluatot's Signature and Date:

Marks Obtained: Max. Marks:

 Advice

General Observation Suggestions for improvement Best part of assignment

 Acknowledgement

I want to express my sincere gratitude to Dr. Maninder Singh for providing me such an auspicious opportunity to work
on this Assignment and I am also thankful for his guidance and ecouragement in carring out this project work.

Thank you
 Content

TOPICS PAGE

Introduction 6

History 7

Context 8

Demerits 9,10

Merits 11,12

Case study 13,14

NPA statistics 15

National contribution 16

Analisis (PESTLE & SWOT) 17,18,19

Recent Updates 20

Conclusion 21

Reference 22
 Introduction

TOPIC
''CAN PRIVATIZATION OF INDIAN FINANCIAL MARKET CREATE A STABLE AND PROFITABLE FUNDING
SYSTEM''

MEANING

Starting from the very basics , primarily simplifying the topic denotes:

Privatization means the transfer of ownership , property or business from the government to the private sector.

Indian Financial market means it is a marketplace for financial products , securities including stock market , derivatives
market and forex market . Or a Financial market links the savers and the investors by mobilizing funds and capital
between them (allocative function). It play a crutial role in allocation of scarce resources and smooth operation of
capitalist economics . Further financial market is fragmented into two segments called Money market and capital
market . Banks , Indian BSC etc are examples of financial markets

So the topic signifies :

''Whether shifting of ownership (denationalization) of financial markets in India is a sound secure and profitable decision ?''.
 History

''The public sector has entered into too many areas where it should not be . We shall open the economy to private sector in
several areas hither to restricted to it''

~PM Rajiv Gandhi , on first national broadcast (1985)

India's New Economic Policy was announced on July 24, 1991 known as LPG or Liberalization PRIVATISATION and
Globalisation. It was formulated under P.V.Narasimha Rao as Prime Minister and his then-Finance Minister Dr. Manmohan
Singh. Finally , India approached International Bank (World bank or IMF International Monitary Fund) for Reconsideration
and Development, recieved $ 7 million as lone to manage the crisis at that moment of time. The main objective behind this
was to accelarate Indian Economy and marginalize accumulation of capital investment credibility and power of
public/government sectors.
 Context

''Privatisation is not a panacea for the ills of banking sector unless accompanied by reforms in banking regulation''

~ Former governor RBI, Raghuram Rajan

Privatisation of indian financial markets can be a bipolar topic to discuss on. It exhibits both merits and demerits at every
single instants . We need to scrutinize and analize rigorously every possible aspects from multiple perspective and
dimentional angles for a rational and gratifying conclusion.

So we begin our analysis of this topic with demonstrating maximum cons and pros
 Demerits

● Privatisation creates a gap between Rich and Poor. Urban florishes and rural is neglected. Ultimate aim of privatisation is
to obtain maximum profit and to render less social obligation.
Common middleclass people dont trust in private.

● Lack of transperency leads to inadequate information to government. Privatisation escalates illegitimate way of
accomplishment of licenses and business deal among government and private bidders. Lobbying and bribary are partially
exersised. There may be conflict of intrest among stake holders and management of buyer private company and initial
resistance to dynamics or change can hamper the performance of the enterprise.

● Privatisation escalate price inflection in general as private enterprise do not enjoy government subsidies after the deal and
the burden of inflation affect the common men. Adding to it Private banks do not lake intrest on government welgare
programme.

● Small and medium level enterprises will be wipe-out under privatisation. Farmers , retailers , students will be the worst
victimes. Another problem is short termism of firms to please shareholders they may seek to increase short term profits and
avoid investing in long term projects. For example, the UK is suffering from a lack of investment in new energy sources;
the privatised companies are trying to make use of existing plants rather than invest in new ones.

● One directive principle of state policy is that government would strive at re-distributive justice in the country. Privatisation
is a step away from it. Also government misses out on their Potential dividends, instead going to wealthy shareholders .
● Privatisation is a kind of domination of the economy by foreign capital . It becomes difficult to distinguise in practice
between domestic and foreign capital when they are operating together.This may also lead to Industrial fragmentation like
it happened in UK after the privatisation of railway.

● Privatisation means selling of state properties at “away price” and finally the private owner become monopolistic . As we
have came to a topic of monopoly today in our ECO113 , sir taught us about the “Market Morphology” (27 Oct , 2020).
Bascically monopoly occors when the most effective number of firms in an industy is one example Microcoft and Indian
Railways (news of privatization of indian railway is in news) so no scope of competition would just create private
monopoly which might seek to set higher price which will exploite consumers. Its better to have public Oligopoly then
private monopoly . Afterall State property grows through the sacrifice of the taxpayers.

● Many government schemes like “Jan-Dhan Yojna” and “Pension Yojna” worked well and also became successful only
because they were applied in Public Sector Banks. India has been a planned economy for the last about five decades. But in
absence of any effective control over the commercial banks, the economic planning was incomplete and monetary policy
targets were difficult to achieve and pursue.
● Another disadvantage of privatization is the excess use of nepotism which will affect the banking services.

● Employes on private banks have to work hardget less salary and perk . At the other hand there is a hazard called “worker
union”, government banks have a huge payroll. Their employees are considered government employees and cannot be
easily sacked. The moment they hear about privatization, it is likely that they will panic. This is likely to start protests and
political fights all over the nation. Managing the workforce will be one of the biggest challenges that the Indian
government.
 MERITS

● Privatisation will help in addressing the bad lones and NPA issue. More vigilant against loans and frauds

● Better and quick financial funding and performance. In general private sector banks are more advanced and effecient.
Greater accountability is exhivited in private banks as comparision to public sector.

● Government liability will decrease. Bank nationalization had given monopoly to the government in the banking industry.
As in case of any monopoly situation, the quality of service went down and the people suffered.

● Helpfull in reducing fiscal deficit and financing revenue expenditure through revenue reciepts in long term .

● Privatisation will generate minimum government and maximum governnance. Pro active , customer-centric , transperent
and sustainable governance.

● Foreign investors prefer Private sectors.

● Intrest rate in fixed deposite and savings of private banks are higher than public sector banks.It delivers better profit
incentives such as downsizing staff, motivating staff, training staff and provides competitive prices through taxing previous
public sector it generates money for the government , when a government sector is privatized the government can pay off
their debt faster.
● During 2001-02 and 2002-03 all private sector banks declared high profit . With some bank reporting 200-300% growth in
their bottom line.

● Private and foreign bank can resist local government pressure to lend to favored sectors. Also State ownership of banks
reduces competition and breeds inefficiency.

● Frequent re-capitalisation of public sector bank is a huge burden on government budget . Big economic events like
demonetization and bank mergers brought a lot of uncertainty and changes with them.

● The relative insensitivity of the public sector banking system to its cost structure, inability to respond quickly to the
changing market trends and the greater rigidities in the management decision-making processes because of what may be
described as ‘non-com- metrical’ considerations.

● Dr. Jalan, Governor of RBI has given the following arguments in support of privatisation of the banking sector and he says
and I quote “ India should increase its domestic savings and invest them in the services sector to emerge a leader in the
world economy. He also quotes W. Arthur Lewis to the effect that the central fact of economic development is that of
capital accumulationand that would require an increase in the rate of domestic savings from 4 per cent to 12 per cent.”

● Lack of political interfearence it is argued governments make poor economic managers. They are motivated by political
pressures rather than sound economic and business sense.

● Complience and Risk mitigation some experts in the banking sector are bewildered at the inefficiency displayed at Punjab
National Bank. (further detailed explaination is done in upcoming slides) .
 CASE STUDIES (SCAMS)

ALL THE BIGGEST FINANCIAL SCAMS IN INDIA ARE SANCTIONED BY PUBLIC SECTOR BANKS

I would like to enlight few gigantic financial scams of India ,focusing on the coinsidence of consistent involvement of public
sector banks in them. Facts are completely legitemate but I am writing this concept of my own intensifing corrupted public
sector banks can be a reason for Privatisation of Indian banks . And this slide can optimisticaly be included in the merits of
privatisation category.

● Vijaya Mallya (9000 crores)

SBI – 1600cr , PNB - 800 cr , BOI – 650cr , BOB – 550cr , CBI – 410cr ,UBI – 430cr along with
UCO, State bank of mysore , Indian oversea bank ,Federal bank , Punjab and sindh bank , Axis bank , IDBI and
corporation bank whopping a sum of 1866 cr.

Analisis – The point to notice here is out of total 14 banks 3 (highlited) are private banks contributing 10.4% of his total
pending loans.

● Nirav Modi (1.8 billion or 13400 crores)

● Analisis – Nirab Modi managed to fraud fake LOU (Letter of Undertating) from PNB (Punjab national bank) by bribing
and corruption. But the point to notice is PNB is completely PSU since 1894.
● Subrata Roy (86,673 cr)

Analisis – In 2009 , a conglomerate company named SAHARA INDIA wanted to make their company public to raise new
fresh capital through IPO and came up with fixed deposite scheme by approximatly 4 crores investors which eventually
nullified. Still it was not completely private .

● Harsgad Mehta (24,000 cr)

Analisis – In 1992 , Harshad Mehta's company grow more was accused of defrauding banks, manipulating stocks and 25
more criminal charges elligated on him. Including sanctioning huge amount of lones without BR or SGL to the bank named
“National Housing Bank' , which was completely private bank.

My topic is can privatisation of indian financial market create a stable and profitable funding system ?The length of numbers
above mentioned neither enter to a common indian citizen's mind not his calculator ! How he/she would feel safe in funding at
any public sector banks expecting it to be profitable. The money which are scandalised are the money of these common men
only. So in a nutshell , if we would like to conclude major of the frauds and corruption is being practised in public sector
banks.

What happens to all these money which are scammed? They are nullified after a speculated interval of time and finally
declared as bad lones or NPA. Vanishment of such large amount of capital adversely affect out Indian GDP for which PSU has
no answers.
(one more benifit of privatisation is private banks are too rigid in such espects , a PSU exhibit legitmate rights to
instantaniosly claim ownership on logistics and assets as soon as the loner fails to replay within time, however public sector
banks are comparatively not that rigit. This paves the way for the establishment of encouragement in people intenting to fraud
and lounder money)
 NPA STATISTICS

PRIVATE BANKS – Table 1 and PUBLIC BANKS – Table 2

ICIC Bank 44,237 cr

Axis Bank 22,136 cr

HDFC 7,644 cr

SBI 1,86,000 cr

PNB 57,000 cr

Bank of India 46,307 cr

 NATIONAL CONTRIBUTION

Contribution of banking industries in indian GDP has been immense. It contributes 7.7% to the whole Indian
GDP . Of which from 2013-18 :

Name of sectors Total amount Percentage

Public sector banks $1,557.04 66%

Private sector banks $666.99 28%

Foreign banks $135.96 6%

 ANALISIS

1. PESTLE:

POLITICAL:Its hazardious to work or maintaining the economy under a county with largest democracy of the world where
the probability of dynamics of political consistency is so high . experts have repeatedly called for lesser political
interference in the running of the banks, most people agree that it is routine for lenders in the public sector and even the
private sector to pay heed to requests from politicians as far as lending and other aspects are concerned. Moreover, the
political masters appoint the chairpersons of the banks and financial institutions and this gives them a major say I the day to
business practices at these entities.
ECONOMICAL : Whether it is liberalization or the GFC or the Demonetization measure, banks and financial institutions
are heavily impacted by the macro and the micro economic forces. Accumulation of capital and Funds in PSU may creates a
ground of partiality but at the same time many big business tycons prefer private banks to avaoid frequent protocols. The
reason for this is that the Indian Economy has not yet matured to an extent where micro trends are insignificant . Having
said that, the steady development and integration of the Indian Economy into the broader global economy has resulted in the
macro gaining traction as the moving force of the BFSI sector.
SOCIAL :Talking socially , a major section of people in india are under BPL so many of them do believe and relie on PSU
and not in private banks. With the increase in the population of the youth, banks and financial institutions are offering ever
more lucrative investment options to this segment. Moreover, with the rise in consumerism, there has been a concomitant
increase in the numbers of Indians holding credit cards and debit cards that are also in tune with the Indian Governments
Digital India push for payment avenues. Indeed, taken together, what the changing sociocultural dynamics indicates is that
the BFSI sector in India is at a stage where it is mimicking the consumer lending practices.
TECHNOLOGICAL:Frankly , public sectors have always been vintage and old school , in comparision private banks are
dinamics and have adoption skills with passage of time in technological aspects , so private sectors banks are far sound then
PSUs . Transacts online and the mobile channels with advanced tech, the majority of Indians are simply in the tech
wilderness as far as their ability to leverage technology is concerned. Indeed, this is the reason why Demonetization and the
concomitant push towards Digital Banking failed to take off as most Indians are not used to using tech enabled banking and
payment channels.
LEGAL:Indian Legal System is cumbersome and long winding, it is natural for banks and financial institutions in India to
take the consumers for granted including trying out unconventional and often, legally dubious methods of loan recovery as
well as selling of financial products. Magnitude of financial flauds have always being large in India , in above slide we knew
about them. So comparatively legally private banks are quite safe with the country having weak laws as far as cybercrime is
concerned, the thousands of Indians who fall prey to phishing, cyber fraud, and online scams keeps growing without any
meaningful solution to their woes. Thus, it can be said that there is an urgent need to rectify the situation.

ENVIRONMENTAL:This aspect does not have much of an impact on the Privatisation of finantial system or Indian BFSI
sector since Green Lending and CSR or Corporate Social Responsibility business practices are yet to take off among the banks
and financial institutions. Indeed, it is only recently that the banks and financial institutions started a separate department for
these aspects and hence, the sector has a long way to go before it catches up in this regard..

2. SWOT

STRENGTH : The main strength of the Indian BFSI (mostly PSUs) sector lies in its ability to trust and deliver volumes since
India being a large and diverse country, offers the benefits of a humungous customer base. In addition, the PSU sector also
relies on high net worth individuals who are a sizable segment of the population considering the number of Millionaires and
Billionaires in the country . But talking about ptivate sectots Professional, dedicated and well- trained manpower, Efficiency
is maintained at the highest level , The new Private Banks have commenced with strong financials and with a clean slate i.e.
without having to pursue NPAs, Almost all these banks have complied with Capital Adequacy requirements and prudential
norms, Most of these banks are fully computerized and techno-savvy

WEAKNESS: Both old and new private banks are operating in a limited area confined to a region, Although highly
networked, the number of branches is limited, The employee turnover appears to be on higher side, There is dissimilarity
between old and new private banks by virtue of their age, functional area, products and services, etc. The most notable
weakness of the Indian PSU is its informal and unstructured lending and banking processes. Indeed, despite attempts by the
RBI and the Finance Ministry, they have been unable to rein in the dubious practices followed by the banks and NBFCs..
OPPERTUNITY: There are humungous opportunities for the Indian BFSI Sector since the majority of the population is
unbanked and especially in the rural areas where banks and formal financial sector firms do not have a presence. Indeed,
banking for the unbanked offers an unprecedented opportunity for the Indian BFSI sector as can be seen from the success of
emerging banks such as Bandhan Bank .Private sectors prove to be one of the finest platforms of oppertunities High level of
autonomy facilitating them for faster decision making. To face stiff competition, they can innovate new products and services
and achieve high customer satisfaction. With full computerization, they can offer cost-effective services like ATMs,
Electronic Fund Transfer, etc. THREATS Expansion of foreign banks in the post WTO era poses severe competition.
Dominant PSBs which are recharged with a high market share will over-shadow the Private Sector Banks. Frequent
announcements of takeover / Mergers & Acquisitions by PSBs as well as new Private sector banks disturb the very
functioning of old Private Sector Banks. RBI / GOI relaxation of FDI investment norms cause worry among the
managements.

THREAT: In this particular espect the distribution of the threats in public and private sector is mutually equal. There are dark
clouds on the horizon for the Indian BFSI sector especially in terms of the rising bad loans and the NPAs (Non Performing
Assets) which can bring down the banking sector if they are not managed in a structured manner.(We have already studied
about it in previous slides) Indeed, it can be said that the Indian BFSI sector is facing an existential crisis as far as the
problem of NPAs are concerned. added to this, someday or the other, the sector has to grow beyond its dubious and wink and
nudge informal and personal collusion crony capitalist practices if it has to well and truly emerge as a global player.
Morever there are lots of history of financial scams to learn about the consistent to indian financial system.
RECENT UPDATE:

There are lots of recent news on this topic. But here is 5 most important news regarding this :

1. New Privatization Policy: Only 4 PSUs In Banking, Insurance; Rest Everything Will Be Sold Off

https://trak.in/tags/business/2020/10/20/new-privatization-policy-only-4-psus-in-banking-insurance-rest-everything-wi

2. Centre may have no stake in public sector banks after privatisation

https://www.business-standard.com/article/finance/centre-may-have-no-stake-in-public-sector-banks-after-privatisation-12010190005

3. New privatization policy ready; Cabinet to discuss note on 'strategic sectors' soon
Banking and insurance will be designated as 'strategic sectors', sources told Moneycontrol. Over the long run, the Centre will
have only four PSUs in strategic sectors and exit the 'non-strategic sectors' completely

https://www.moneycontrol.com/news/india/new-privatization-policy-ready-cabinet-to-discuss-note-on-strategic-sectors-soon-5983001

4. How privatization and data monetization can solve India's fiscal deficit problem

https://economictimes.indiatimes.com/markets/stocks/news/how-privatization-and-data-monetization-can-solve-indias-fiscal-deficit-p

5. Centre To Have Relaxed Control Over Privatised Public Sector Banks

https://www.theindianwire.com/banking/centre-to-have-relaxed-control-over-privatised-public-sector-banks-295360/
CONCLUSION:

According to my analysis and summerizing all aspects and angles , I strongly can conclude that :

“YES , PRIVATISATION OF INDIAN FINANCIAL MARKETS CREATE AND PROFITABLE

FUNDING SYSTEM”

Indian economy has tremendious potential of growth . Globalisation , Liberalisation and Privatisation are the
key to economic development. All these are gaining acceptence with resistance. Privatisation has shown great
outcome in the sectors like bankings , insurance , stocks ìn a nut shell the entire finantial system of india .
Indian economy has registered an average growth of 8.5% in past is an index of potential of
privatization.However India is not a very alluring destination for foreign investors.Bureaucracy , red tapist,
Pollitical hiccups , corruption are also the major hindrance of economic development , inspite of available of
skilled and cheap labour , high rate of returns as compared to industrial countries . With liberal reforms in
politics of state , future of privatisation seems to be bright in india . However complete privatisation is a
dream. In most of the Liberalised sector Government control is evident. The joint venture between public and
private sector and more functional and pragmatic approach of transaction .The change in international politics
and economical senario paved the way for privatisation of bankings in the country as a pursuit of economic
reforms to meet the fiscal deficit . In the current years there is spectacular pressure of industrial countries and
financial institutes like IMF and world banks for rapid privatisation of PSUs. Further it has already been
established that the pattern at which private sector work in the competative envernment with their unique
features of management autonomy market inteligence system. Tecnology adaption customer relationship
managament is a basic account why they are better than PSU. The change in pro privatisation is the mind of the
key politician rulled india for last 2 decades has strengthened the process of privatisation in the countrybecause
of fiscal compulsion increase of external debt and poor functioning of PSU . It is justified on the part of india
to go for privatisation
References :

https://www.slideshare.net/Ashish4321/private-sector-banks-swot-analysis

https://www.slideshare.net/Ashish4321/private-sector-banks-swot-analysis

https://www.marketing91.com/swot-analysis-state-bank-india/

https://www.slideshare.net/Ashish4321/private-sector-banks-swot-analysis

https://vocalinternational.com/pros-and-cons-of-privatization-of-banks/#:~:text=Many%20government%20schemes%20like%20%E2%80%9CJan,will%20affect%20the
.

https://trak.in/tags/business/2020/08/12/3-reasons-why-privatization-of-psu-banks-is-urgently-needed-in-india-opinion/

https://bipublication.com/files/ijaser-v3i1-2013-04.pdf

https://www.preservearticles.com/education/7-main-arguments-for-privatisation-of-banks-in-india/26940

https://www.economicshelp.org/blog/501/economics/advantages-of-privatisation/

https://www.managementstudyguide.com/privatization-of-indias-public-sector-banks.htm

https://www.scirp.org/journal/paperinformation.aspx?paperid=90264

https://www.deccanherald.com/opinion/privatisation-of-banks-is-a-great-idea-and-will-remain-so-868557.html