kingfisher case study, comparison between indian and chinese financial structure

1. BANK MANAGEMENT
COMPARATIVE STUDY BETWEEN THE INDIAN ND
CHINESE BANKING SYSTEM
 CASE STUDY OF KINGFISHER FRAUD AND
RELATED SCENARIO
SUBMITTED TO:
MAM RAMNEEK
SUBMITTED BY:
SAKSHA SHARMA
5810
M.COM(II)

2. BASIC INDIAN STRUCTURE AND
CHINESE STRUCTURE
INDIAN FINANCIAL SYSTEM:
Mainly it consists of scheduled
commercial banks, co- operative
banks( rural and urban co-
operative banks), development
financial institutions, non banking
financial institutions.
CHINESE FINANCIAL
SYTEM:
System as it exists today,
comprises of commercial banks,
co- operative banks, non bank
financial institutions and the
capital market.

3. SIMILARITIES BETWEEN THE TWO
SYSTEMS
State ownership is dominant in banking
system in both the countries.
Both countries depend upon bank finance for
economic growth and capital markets are less
developed
The share of commercial banking sector
financial assets is likely to increase.

6. BANKING IN CHINA
• Before reforms the state owned commercial banks in china were namely:
1. ICBA- Industrial and commercial bank of china
2. BOC- Bank of china
3. CCB- China construction bank
4. ABC- Agriculture bank of china
• In 1994 3 new policy banks were established, namely, Agriculture Development
Bank Of China(ADBC), Export and Import Bank of China, China Development
Bank(CDB).
• There is nothing like Deposit Insurance in China as per IADI-(International
Association of Deposit Insurers) but Hong Kong , a special administrative area
under China has deposit insurance for it’s banks.
• Policy Banks operate on No Profit- No loss basis and do not compete with central
bank. They fund themselves through central bank loans, government deposits,
issuance of government guaranteed bonds held by commercial banks.

7. REGULATION
• In India RBI is the apex bank(central bank) which governs every bank in
the financial system. Scheduled commercial banks are directly covered
under RBI ACT 1935 and the unscheduled banks are covered under
BANKING REGULATION ACT, 1949.
• Objective of RBI is to ensure monetary stability and operating the currency
and credit system of the country to it’s advantage.
• Peoples bank of china is the central bank of China. When the second
generation of reforms were initiated in China. CBRC- China Banking
Regulatory Commission, national regulatory body over Chinese banking
system was set up.
• Both the apex bodies have their own goals and objectives. The policy and
responsibilities of both have been divided to avoid any confusions.

8. PBC AND CBRC
PBC
• It has the responsibility of
monetary policy and
representing the country in an
international forum.
• To reduce the risk and
promote stability of financial
system.
• To regulate lending and foreign
exchange between banks and
supervises the payment and
settlement system of country.
CBRC
• Writing the rules and
regulations governing banks in
China.
• It conducts examinations and
keeps oversight of banks,
collects and publishes statistics
on banking system.
• It approves the establishment
or expansion of banks and
resolves potential liquidity,
solvency or other problems
that might emerge at
individual banks.

9. LESSONS FROM THE MALLYA CASE

10. Lack of transparency weakens our public banking sector. In the age of
information technology and the Excel spreadsheet, the necessary
transparency is literally just a click away.
It appears that not everyone agrees on the true significance of a flamboyant
tycoon decamping with debts of Rs.9,000 crore owed to India’s banks. The
gentleman is no ordinary businessman at that, having earlier been embraced
by the country’s political parties that had rewarded him with membership of
Parliament. That such an honor could have been bestowed upon Vijay Mallya,
who only inherited wealth to make a lavish display of it when the country
abounds with captains of industry who actually generate it, should alert us to
how political patronage works.
When the incident had been analyzed in the media as an instance of crony
capitalism, a maverick economist had quipped that it may be better described
as “crony socialism”. Perhaps he had had in mind that it is the public sector
banks that had lent so fecklessly to Mr. Mallya, and these had for decades,
been showcased as a symbol of Indian socialism.
LESSONS FROM MALLYA CASE

11. Action and reaction
Bank nationalization in the 1960s led to schemes such as branch expansion, priority sector-
lending and the takeover of private banks teetering on the brink thus rescuing thousands of
small depositors. But now, four decades later, it can hardly be asserted that the performance of
India’s nationalized banking sector has been sterling, with inefficiency and poor service having
been highlighted, and it taken the Pradhan Mantri Jan-Dhan Yojana to rectify their failure to
advance the cause of inclusion on their own. But nothing quite matches the scale of the present
scam, with public banks having lent such large sums of money to a single individual with
indifferent capacity and without adequate collateral.
We may argue over whether what we have on our hands now is the result of mismanagement,
poor judgment or mala fide conduct, but one thing is clear. If the money is not retrieved from
Mr. Mallya, the loans would have to be written-off, involving a depletion of our assets for we
own the banks. And if the banks are recapitalized via the Budget, it would be us who will foot
the bill for his excesses. Either way, it underlines the direct bearing upon us of the actions of
public sector banks. There is no escape for us from this connection even if we migrate to the
newer private ones for our personal banking, for we would continue to own the public banks.
LESSONS FROM MALLYA CASE

12. Banks to blame
There is no question that the banks are responsible for the predicament in which they find
themselves. How is it that several leading nationalized banks have separately lent such
staggering sums to a dubious client struggling to establish himself in an highly competitive
industry? There is reason to believe that Mr. Mallya was the beneficiary of pressure brought to
bear upon the banks from the outside. And this could only have come from politicians who
preside over the banking system in a governing capacity. If this is not the case, then we must
worry seriously about how individual public officials can dispense such large sums of public
money so freely. Are there no checks and balances in our public sector banks?
The term crony capitalism is used to describe a situation of private players being shielded from
competition or vaulting over rivals due to the intervention of the ruling class. This usually takes
the form of a relaxation of rules or granting of exclusive licenses. The history of the United
States in the 19th century is replete with examples of these. But things have improved
substantially in that country, and in any case l’affaire Mallya is something worse. It is one in
which the Indian public stands to lose directly. In the forms of crony capitalism considered
above, the loss is indirect, usually in the form of higher prices. Even in the gigantic market
intervention following the recent financial crisis in the United States, money had not been
channeled to individuals.
LESSONS FROM MALLYA CASE

13. Under the Troubled Asset Relief Program
(TARP), the government had purchased assets
of struggling banks with a view to ensuring
that they did not collapse taking along with
them the rest of the financial system. These
assets were disposed of later at a profit by the
government! The U.S. government had acted
smartly, while in the Indian case the banks now
find themselves saddled with loans made by
them to an individual with negative net worth.
The irony could not have been more stark. The
U.S. government had intervened smartly in a
society strongly committed to laissez faire. On
the other hand, for a country with “socialist”
written into its Constitution, our public banks
have unduly favored a hereditary businessman
without a sound business plan but with lots of
political cronies. Also, the banks had lent to a
company that has been in the news for not
having paid its employees for a noticeable
period of time. Here, India’s public sector
banks have acquiesced in the violation of
employment rights

14. Dealing with the mess
Despite Mr. Mallya’s boorish style, we must resist the temptation of a tit-for-tat response, acting
always in our best interest. Things that the Government of India can do would fall in two boxes.
The first concerns possible ways to deal with the absconding debtor. The second contains
measures needed to ensure that public sector banks do not find themselves in a similar
situation ever again. On the first, there can be no question that the retrieval of loans made to
Mr. Mallya must be pursued relentlessly. There are no grounds for giving him more time to
present himself or to settle for less than what he owes the banks. He is perceived as a willful
defaulter and must be given exemplary treatment. The actions taken so far by the government
are pathetic to say the least. The Finance Minister, under whose watch this has taken place, has
not made any definite statement. He must actually announce a plan of action detailing how he
intends to bring the businessman to book.
LESSONS FROM MALLYA CASE

15. Making the process clear
Now onto the second of the set of actions that may be taken by the government in this case. In
a plea to the contrary made by the Reserve Bank of India (RBI) to the Supreme Court lies an idea
with hidden potential. When handing over a list of defaulters of loans from banks, the RBI is
reported to have requested that the names not be revealed. As far as the publicly-owned banks
are concerned, this goes against an important principle applicable to the public sector.
It would be unfortunate if we are to allow a distinction made between “passive” and “willful”
defaulters to muddy the waters. The only question here is whether full disclosure will lead to
better outcomes. There is reason to believe that it will. Details of every loan sanctioned by the
nationalized banking sector, including the history of the borrower, the grounds on which viability
has been ascertained, the guarantors, the collateral pledged and the officials involved may be
posted on the website of the bank concerned.
We also need to work towards a re-engineering of procedures. It has been suggested that fear
of being scrutinized by the office of the Central Vigilance Commissioner has petrified loan
officers in the public sector into inaction. It is of no use having a publicly-owned banking system
that does not extend credit to sound projects on grounds of retrospective scrutiny. This can be
taken care of by moving to a system of whetting loan applications through committees, thus
allowing joint responsibility to come into play. Lack of transparency weakens our public banking
sector. In the age of information technology and the Excel spreadsheet, the necessary
transparency is literally just a click away.

16. Captain of the 17 bank consortium, SBI, and the ED met to thrash out a strategy for recovery of loans
worth over Rs 9,000 crore borrowed by liquor baron Vijay Maya and his now defunct Kingfisher
Airlines (KFA).
Officials said the meeting was arranged by the Finance Ministry at the behest of the Enforcement
Directorate so that the two sides can discuss the alleged loan default by Mallya and his companies and
also chart the way forward.
The two sides are understood to have shared notes and details of probe that they have undertaken till
now in the case, which is also being heard by the Supreme Court.
ED is probing Mallya and KFA under anti-money laundering laws in connection with a Rs 900 crore
loan default of IDBI bank.
IDBI and 16 other banks have formed a consortium led by the State Bank of India to pursue these
cases against Mallya and his companies.
The agency, which wants Mallya to join the probe in this case "in person", is also mulling preparations
to attach his foreign and domestic assets under PMLA.
It has virtually exhausted all legal options to make Mallya join the probe including issuance of a non-
bailable warrant against him by a Mumbai court based on which it made the requests for revocation
of his passport and subsequent deportation bid to bring back the beleaguered businessman from the
UK.

18. THANK YOU