It is expected that post March 2009 the RBI will permit foreign banks to takeover Indian private sector banks. However, restrictions on expansion by foreign banks may not be relaxed concomitantly. This has already led private sector banks valuations to reflect some kind of a takeover premium. One analyst had in an interview mentioned that the value of a mere licence (no branches) would not be less than US $ 500 million.
If indeed the RBI does permit takeovers the shareholders will enjoy windfall gains – gains in the nature of rents rather then a return on efficiency or profitability. Since a bank and branch licences have been made a scarce resource by the authorities it is not clear why shareholders of banks lucky enough to hold licences should enjoy such gains.
So either the RBI should permit free entry with few restrictions. Or it should sell or auction banking or branch licences. The prices and modalities are matters of details that can easily be worked out.
The several billion dollars that can potentially be earned from this exercise rightly belong to the people of India and not a few shareholders. Even so private bank may be taken over but that will be for their assets or branch network, not the scarcity value of a licence.
If indeed the RBI does permit takeovers the shareholders will enjoy windfall gains – gains in the nature of rents rather then a return on efficiency or profitability. Since a bank and branch licences have been made a scarce resource by the authorities it is not clear why shareholders of banks lucky enough to hold licences should enjoy such gains.
So either the RBI should permit free entry with few restrictions. Or it should sell or auction banking or branch licences. The prices and modalities are matters of details that can easily be worked out.
The several billion dollars that can potentially be earned from this exercise rightly belong to the people of India and not a few shareholders. Even so private bank may be taken over but that will be for their assets or branch network, not the scarcity value of a licence.
2 comments:
you are correct to argue that this is arent. but you implicitly assume that goverment will do a better job of reditributing the windfall gains than individual pvt sector shareholders.
also for the govt to collect a >0 license auction price it has to limit the no of licenses bringing us to the same problem.
What ought to be done with windfall gains is a much broader question. Such revenues have come, for example, from telecom licensing (and more may be obtained from 3G auctions) and smaller amounts from FM radio licences. The government seems not to have captured rents from mineral royalties (exports and domestic use as well).
It is tempting to say that such monies be used for purposes such as environment restoration esp. revenues raised from mineral royalties but that would be ducking the question you raised. Money is also fungible.
However, a decision to spend the money need not be made now. If it is agreed that such windfall gains belong to the people of the country a trust fund may be set up. Income generated from investing the fund would also belong to the fund. Such funds have been set up in Alaska and Norway (oil and gas revenues) and even Russia has such a fund.
The issue of collecting such windfall gains can thus be divorced from that of spending them. In the future it may be practicable to write cheques to each man, woman and child in the country
As for granting licences many alternatives could be envisaged. For example the RBI can fix an entry fee of say, 100 million dollars and 1 million dollars per branch. Unlike telecom there is no upper limit because there is nothing like a physical spectrum to apportion. In principle the same rule can be applied to domestic entrants as well. If not, care needs to be taken to prevent picking up licences merely to sell them to foreign entrants.
Post a Comment