Sunday, July 25, 2010

103 US banks collapse in under 7 months

103 US banks collapse in under 7 months

What a sad note! 140 banks were closed in 2009 itself and another 103 shut down in 2010 (by July) in USA, out of a total of 8,000 banks. It is known that USA follows the Unitary Banking System while in India we have branch banking system. There are enough ways of overseeing the functioning or working of our branches / banks with a highly systematic and scientific supervising mechanism. In the process, technically India has not faced closure of banks due to the recent meltdown or recession. May be, there have been some mergers and acquisitions between private and public sector as also some foreign banks globally in last few years.

Enough research was carried out about the robustness of Indian Public Sector Banks on several parameters for so many years. Even when the country undertook Economic Reforms in 1991, with a focus on the banking system beginning 1993, India never faced such a disaster. It was the legacy of the previous regimes or operating environment as to branch expansion policy, credit camps or loan melas, subsidies and margin money having been pumped in by the governments towards rural lending, followed by debt waiver schemes, that made the banking system weak, non-productive, loss making and so on.

Prudential Norms, Asset Liability Management, defining of NPA norms, deregulation of interest rates, and moving towards total computerisation have certainly made the Indian banking system robust and healthy. The PSBs were ready to take in competition from new private and foreign banks within no time. Any amount of adjustments in Capital Adequacy Ratios, three revisions of NPA definition, changes in CRR and SLR, introduction of Benchmark Prime Lending Rates and other measures made the banks in India stronger and stronger to face the challenges including withstanding of the onslaught of Global Recession of 2008.

No comments: