Book Reviews: Banking Reforms in India, Consolidation, Restructuring and Performance, T.R

Ind. Jn. of Agri. Econ.
Vol. 72, No. 4, Oct.-Dec. 2017
Book Reviews
Banking Reforms in India, Consolidation, Restructuring and Performance, T.R.
Bishnoi and Sofia Devi, Palgrave Macmillan, Switzerland, 2017. Pp.xxi+241.
$129.00.
Pursuant to the recommendations of the Narasimham Committee, a number of

measures were initiated towards reforming banking system in the country to make it
vibrant and competitive. Among others, these measures included capital adequacy
and prudential norms, asset classification, clearing up balance sheet of non-
performing assets, recapitalisation and allowing entry of new banks in the private
sector to impart competitiveness in the financial system.
This book attempts to capture the impact of some of these measures such as
mergers and acquisitions on individual banks, extent of competition and
concentration, trends in profitability, economies of scale, use of information
technology, productivity and growth of banking sector and incidence of non-
performing assets. These issues have been delineated in detail in this book
contributed by seasoned researchers working for RBI Chair on banking at a renowned
university of the country, the M.S. University of Baroda. The book epitomised a
sober analysis of facts and figures relating to banking reforms. There are a number of
official publications particularly by Reserve Bank of India, viz., Annual Reports(s)
and Report of Trend and Progress of Banking in India, etc. However, these
publications relate to one year only with limited degree of freedom. Plausibly the
book under review contains time series analysis with high degree of freedom of
expression. The reference period of the study is more than adequate covering a
quarter century of banking reforms in India.
The book contains nine chapters. The first chapter provides a brief overview of
Indian banking structure covering the historical background of Indian banking
regulation and operational banking structure, including post financial reforms. Issues
like relative size of banking structure assessibility and outreach allocation of credit
have been also discussed in this chapter. However the analysis is more academic in
nature at macro level and very little on the grass root level. Basic classification of
rural and urban is not examined and accepted as given by RBI. It is interesting to note
that definition of rural and urban as given by the census of India and Reserve Bank of
India is totally different. The data published by census commissioner and RBI are not
compatible. The authors should have raised such points with focus of analysis at
grass root level. Similarly it is also expected from the researchers that trends in the
credit deposit ratio is analysed to throw light on regional distribution of banking
resources. The second chapter deals with the banking reforms covering important
BOOK REVIEWS 589
items like deregulation such as liberating entry barriers and interest rates, prudential
regulations such as capital to risk-weighted asset ratio, variable reserve ratios,
classification of non-performing assets, income recognition and provisioning matters
relating to governance, transparency and disclosures etc. It has been pointed out that
these measures have added stability and dynamism in the economy in general and
banking sector in particular. Restructuring and consolidation of banks through
mergers and acquisitions have been discussed in third chapter. The analysis reveals
that consolidation of the banks for achieving efficiency has not given the desired
results.
Evidently enough mergers and acquisitions have not improved efficiency of the
banking system. It is intriguing to note that contrary to empirical evidence
consolidation and meagers have been pursued in Indian banking at the cost of
efficiency. The fourth chapter analyses the degree of competition and concentration
of Indian banking system with particular focus on public sector banks having more
than 70 per cent of total shares of deposits and advances of scheduled commercial
banks in India. The study used K firm concentration ratios and Herfindahl –
Hirschman Index (HHI) values. The concentration ratio indicates that an average of
45 to 47 per cent of market share is dominated by four larger firms (banks). HHI
value also supports these conclusions. The study noted low competition among banks
due to market concentration. The study also concluded that banking industry in India
is more akin to an oligopoly type of framework, a rare feature of banking structure of
developing countries and other emerging markets. Needless to mention oligopoly
banking is characterised by higher interest spread and high entry barriers. The chapter
fifth is devoted to cost efficiency and productivity. The study reveals that on scale of
economies Indian banks are not size neutral. Manpower productivity ratios indicated
positive changes during the period under review. The sixth chapter analyses
profitability of public sector banks in terms of return on assets (ROA), return on
equity (ROE) and profit margin (PM). The study brings to the fore that banking
reforms have significant impact on the performance of banks in terms of growth of
profitability.
An attempt has been made to delineate factors that impacted the non-performing
assets (NPAs) of banks. Bank group-wise analysis of NPAs have been carried out.
Sector-wise analysis did not support the hypothesis that there was no association
between high risk NPAs of banks and slow down in the economy. However this may
be on account of data constraints relating to priority and non-priority sectors. An
analysis of classification of NPAs, viz., substandard assets, doubtful assets and bad
debts would have further added to the usefulness of analysis on the severity of the
problems as at times, sub-standard assets may be technical phenomenon. Nonetheless
the mounting pressure of NPAs in Indian banking sector in recent years indicates that
legal provisions and introduction of system of assets reconstruction companies have
not produced desired results. There is a dire need to revisit the role of institution of
asset reconstruction company on the one hand and efficacy of legal provisions to
590 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS
arrest rising level of non-performing assets on the other. It is well known that pricing
of NPAs is a major problem area between the banks and assets reconstruction
companies. While banks prefer to price NPAs on the higher side, companies quote
minimum price. As a result deals are not taking place marginalising the utility of the
innovation in the dealing with the NPAs and clearing the balance sheet of the banks.
An analysis of these aspects would have gone a long way in enriching the usefulness
of this study. The chapter eight contains role and progress of information technology
in banking system. The study has rightly pointed out that use of technology in
banking has enabled banks to undertake vivid financial services in general and
payment services in particular. Introduction of technology also enabled banks to
promote the financial inclusion in remote villages in the country. Introduction of
information technology enabled the banks to improve manpower productivity in
banks. It is intriguing small to note that despite use of technology, charges for
banking services remained high. The main findings of the study have been lucidly
summarised in the last chapter.
In short, the study brings to the fore that due to mergers and acquisitions,
concentration ratio is growing in Indian banking at the cost of efficiency and
competition. Indian banking industry is enjoying oligopoly conditions. It is also
enjoying the economies of scale and higher productivity and profitability.
Introduction of information technology has enabled banking system to enlarge its
activities and profitability. The study is strong on research findings but somewhat
weak on recommendation front. This apart it is broadly silent on the flow of credit to
weaker sections of the society particularly in rural areas. In a sense, banking reforms
helped the banks and not the people using the banking services. Despite all these
limitations, the book is a useful addition to the existing literature on the subject and
worth reading for the students of banking academicians, professional bank personnel,
policy makers both at mint road Mumbai and south/north block(s) in New Delhi.
Mumbai-400 063. C.L. Dadhich
Rural Livelihoods in India: Issues, Measurement and Policies, Edited by Biswajit

Chatterjee and Asim K. Karmakar, Concept Publishing Co. Pvt. Ltd., New Delhi,
2015. Pp. xviii+308. Rs. 1350.00.
The book is a collection of 19 essays on various aspects relating to rural

livelihoods in India with a special reference to the state of West Bengal. The
collection of essays are divided into three major categories: conceptual issues,
determinants and case studies.
The concept of livelihood is multi-dimensional involving access to five forms of
capital: human, natural, financial, social and physical capital, as the editors argue in
this book. Of these, physical, human and financial capital are the most easily
measurable forms at the household level. However, natural and social capital are
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Ind. Jn. of Agri. Econ.

Vol. 72, No. 4, Oct.-Dec. 2017

Pursuant to the recommendations of the Narasimham Committee, a number of

Mumbai-400 063. C.L. Dadhich

Rural Livelihoods in India: Issues, Measurement and Policies, Edited by Biswajit

The book is a collection of 19 essays on various aspects relating to rural

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