Why should you, an MBA student, know about this?
Well, for starters, it’s an economic problem, so no matter whether you’re interested in finance, marketing, operation HR, or strategy, this is an evergreen GD-PI topic. Apart from that, it gives you a bird’s eye view of a problem the country faces and is a good problem to think of.
So let’s talk about private players with ownership stakes in banks. This has happened before, in the USA. When steel, railroads, etc were privatized, and industries were eked out by individuals who later monopolized the markets. But we are talking about banks and banking institutions. A highly regulated arena for any private player to invest in, banks and financial institutions are subject to stricter regulation compared to other industries. But if large private corporations do get a controlling stake in banks, they essentially also expect returns. After all, that’s how private industry functions.
How Will This Affect Us?
While a cash-strapped economy could use the succour these private players provide, it’s also unclear how the industry will benefit from this. In theory, opening the doors of the banking sector to private players sounds like a good step and an innovative solution to our cash flow problems. But if you’ve read George Orwell’s 1987 or studied Marxism, you’ll know that one of the pitfalls of capitalism is that it concentrates wealth and power. With private players owning a controlling stake in banks and financial institutions, it’s probable that the focus is on profits and revenues for the organisations. How this benefits the end consumer remains to be seen. But it does paint a picture where the state-led economy is heading, towards a more privatised, corporate makeover. This could end up being a great way to boost trade, industry, etc.
What do you think? Do you think inviting private players to own a controlling stake in banks will give them more power to shape policy, price and therefore should be heavily regulated? Do you think privatisation of the banking sector is a positive step for India? Are we heading for an eventual monopoly? Share your thoughts and opinions in the comments section below!
Read more about banking regulations and setting up new banks here:
More banks won’t solve the problem of credit supply
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