New Article in Udyamadarshi

A new article of Dr.K.K.Ammannaya has appaered in December issue of Udyamadarshi,Kannada monthly.The title of the article is--
''Paul Krugman Mathau Vyapara Siddantha''

Bank Mergers.

Most of the Indian banks have attained their present size and stature not only by means of organic growth but also to some extent through the process of acquisition ofsmaller banks and through mergers.
The following is the list of mergers since January 1990 in Indian banking sector-
1.Bank of Tamil Nadu was merged with IOB on 20th February 1990.
2Bank of Tanjavoor Ltd was merged with Indian Bank on 20th February1990.
3.Parur Central Bank LTd was merged with Bank of India on 20th February 1990.
4.Purbanchal Bank Ltd was merged with CBI on 29th August 1990.
5.Kashinath Seth Bank Ltd was merged with State Bank of India on 1st Jan.1996.
6.Bari Doab Bank Ltd was merged with OBC on 8th April 1997.
7.Sikkim Bank Ltd was merged with UBI on 22nd Dec 1999.
8Punjab Co-op. Bank Ltd was merged with OBC on 8th April 1997.
9.Bareily Co-op.Bank Ltd was mergedwith Bank of Baroda on 3rd June 1999.
10.Times Bank Ltd was merged with HDFC Bank on 26th Feb,2000.
11.Bank of Madura Ltd was merged with ICICI Bank on 10th March 2001.
12.Benares State Bank was merged with BOB on 20th June 2002.
13.Nedungadi Bank Ltd was merged with PNB on 1st Feb,2003.
14.South Gujarat LAB Ltd was merged with BOB on 25th June 2004.
15.Global Trust Bank Ltd was merged with OBC on 14th August 2004.
16.Bank of Punjab Ltdwas merged with Centurion Bank on 1st October,2005.
17.IDBI Bank was merged with IDBI on 2nd April 2005.
18.Ganesh Bank of Kurundwad was merged with Federal Bank Ltd on 2nd Sept,2006.
19.United Western Bank Ltdwas merged with IDBI Ltd on 3rd October 2006.
20.Bharat Overseas Bank was merged with IOB on 31st March 2007.
21.Sangli Bank Ltd was merged with ICICI Bank on 19th April,2007.
22.Lord Krishna Bank Ltd was merged with Centurion Bank of Punjab on 29th August 2007 and CBOP was later merged with HDFC Bank Ltd.
23.State Bank Of Saurashtra was merged with SBI on August 2008.

KRUGMAN and HIS TRADE THEORY

U.S economist and Princeton University professor who is also a prolific writer and columnist and fierce critic of economic policies of George Bush won the Nobel Prize in Economics for his theory on world trade.The 55 year economist Prof Krugman was honoured for his analysis of world trade patterns and location of economic activity according to the statement issued by the Royal Swedish Academy of Scienceswhich selects recipients of the award.
Krugman has evolved a new trade theory which helps determine the effects of free glbal trade and globalisation as well as the factors that lead to world wide urbanisation.According to Krugman countries can gain a competitive advantage by providing subsidies to important and key industries.
The research and findings of Krugman help us in comprehending and understanding how development of large scale industries and and largescale production for global markets attracts more and more people to to cities apart from bringing aboutsubstantial increase in wages of workers.Migration of workers to cities for employment which are centres of large scale production brings about urbanisation.
Robert Solow a 1987 Nobel laureatewho was professor to Krugman in the past has remarked that this award is clearly for Paul Krugman the economist and not to Paul Krugman the journalist or political critic.
Significant Contribution.
Paul Krugman has made significant contribution to fundamental economic theory.He has through his analysis explained how world trade can be dominated by countries that undertake both import and export of similar products.Prior to Krugman's theory all earlier models for world trade sought to explain why countries trade in spite of being different.Krugman was one of the first to realise that those kinds of models explained only about half of the trade in the world.
Tom Pruse Professorof International Economics at Rutgers University in New Bunswick ,NEW JERSEYremarked that earlier theories did not explain world tradein entirety.Krugman fulfilled this shortfall and he expalined why it makes a difference when countries that are similar undertake trade as opposed to countries that are different.Such tarde facilitates specialisation and large scale production which result in lower prices and greater diversity of commodiies.
Unfettered Free Trade
Krugman is a critic of unfettered free market policies.In his view unfettered free trade policies can cause havoc in different countries.He has thus stressed the need for some sort of regulation as well.Krugman has focussed on globalisation and trade in developing world.
Krugman has evolved his approach based on the premise that many goods and services can be prduced more cheaply in long series and in larger quantities ,a concept generally being referred to as economies of scale.His theory explains that globalisation tends to increase the pressures on urban living because specialisation attractspeople to these centres of concenration through processes that result in ''regions being divided into high technology urbanised ones and less developed periphery''
Traditional theories assumed that differences between countries explain why some countries export agricultural goods and agricultural products while others export industrial products.Such a process holds out the prospect that some countries can improvetheir positions through a process of complimentarity.Krugman's theory explains why world trade is in fact dominated by countries which not only have similar conditions but also trade in similar products.
Krugman's theory seeks to explain that globaliastiontends towards concentration both in terms of what a manufacturing base makes and where it is located.Krugman also focussed on increasing returns explaining that their absence is a key reason for uneveneconomic develpment.Prof Krugman has won the Nobel Prize for evolving and formalising theories relating to industrialistion and increasing returns and economic geography.
The trade theory particularly the theory relating to analysisof trade patterns and location of economic activity was given a new dimension by Krugman.His work in the area of classical studies of forces such as world trade has enhanced the scarcity value of his work according to Edmund Phelps ,a 2006 Nobel Lureate .
Dilating on the current global economic down turn and financail crisis Krugman has opined that economic recovery requires relearning lessons from historical crises particularly the lesson that financail system can not be left completely to the whims of the market.Krugman has thus emphasised the need for some sort supervision over and regulation of markets in lieu of unfettered free market policies.

Anti Money Laundering

An article titled ''Anti Money Laundering Programme for Banks and Its Implementation''has appeared in Southern Economist dated 15th December 2008.

CONCEPT OF EFFECTIVE AND RESPONSIBLE LEADERSHIP AS OUTLINED IN BHAGAVAD GITA

According to Bhagvad Gita leadership is the process of showing the way to others by one’s own example. Lord Krishna has stated in Bhagavad Gita that others will do what the leader does and others will behave in conformity with the behaviour of the leader. “Yadyad aacharati shreshtah tattadevaitaro janah sayat pramaanam Kurute Lokastadanu Vartate”) People would like to follow the example of the leaders whom they perceive as the best. The behaviour, conduct, actions and practice of the leaders would create an impact on the behaviour, conduct and actions of the people. It is therefore, necessary for the individuals at the leadership level to behave in the best manner, adopting high moral standards and integrity. They have to set examples and standards so that, others are inspired to adopt similar standards and norms in their behaviour and actions. If they are inspired in the right direction, they too will adopt the path of best conduct and right values and actions and will try to become responsible active and performing leaders.

Relevance :

Leadership is relevant and has a great role to play in all group activities. An individual can become a good and responsible leader by acquiring certain vital qualities. If we study the lives of great leaders like Gandhiji, Nehruji, Sardar Patel Stalin Washington, Roosevelt, Lincoln, Churchil and many others we find that they became great leaders by dint of their personal efforts, hard work and sacrifice.

Leadership exists in all group efforts and group activities or in situations where there are many other individuals. Leadership thus exists in relation to other people. It has no relevance in a situation where a man lives alone.

Bhagavad Gita and to be more specific the preachings of Lord Krishna to Arjuna in Gita have brought out the relevance and importance of leadership and the qualities required for a responsible and effective leader.

There are two vital factors which are essential for the success of leadership. They are (1) Functional competence (2) Co-ordinating or general ability. Functional competence implies knowledge of one’s job, profession, activity or vocation.

Functional competence :

As stated by Lord Krishna in Bhagavad Gita a responsible leader must have full knowledge of the activity of the group and he must be able to adopt a total and holistic approach to accomplish the tasks. He must know how to optimally integrate management, science and technology using the fire of his knowledge. All his actions are driven by fire of thought, contemplation and knowledge. A leader must have adequate knowledge of his chosen area of activity. If he is a
doctor aiming at leadership in the field he must be a studious, knowledgeable medical professional and he must keep his knowledge and information constantly updated by regular study and by reading medical journals and periodicals and by attending to and participating in conferences, professional seminars, etc. If he is a teacher and wants to be effective and responsible teacher, he must study his subject well and he must keep abreast of the developments in respect of the subject he handles. He should know the latest things as well. The same is true of all professionals be they lawyers, engineers, architects, auditors or bankers. Politicians seeking to lead the country must know the country and its people well. They must study the national economy and know the problems, concerns and challenges facing the nation.

General Ability :

The second vital factor is co-ordinating or general ability. The ability to co-ordinate, control and guide the activities and work of all individuals in a group, the ability to bind the team or group and the ability to bring about full involvement and unity of purpose on the part of all members of the team or group are fundamental for the success of a leader. One can be called upon to lead a group if he is able to influence the group and make it work in the manner he wants.

Adequate knowledge of the field or area of activity in which a leader seeks to provide leadership is very important. Ideas rule the world. An ignorant man who does not know what the group needs may not be able to provide effective leadership. He will miss the essentials and instead cling to useless, irrelevant and worthless things. For providing leadership you need not be the master of every thing. It is enough if you have rudimentary knowledge of various branches of knowledge. The process of providing leadership involves providing vision and providing a perspective.

Providing Vision :

A good leader inspires others through scores and hundreds of visions. He has visions and he makes others to perceive his visions. Vision usually creates a mission. Therefore, a leader must have vision and perspective. A leader need not know XYZ of all things. It is enough if he knows ABC of many things. With such rudimentary knowledge he can make further efforts and acquire further knowledge. Ability to acquire knowledge depends upon one’s grasp which can be sharpened through practice and experience. Grasp and absorption will be quick when you already have some knowledge. Knowledge gained by wide reading, observation, association interaction with others and practical experience and exposure can provide good stock of knowledge and this can even be called practical intelligence.

Practical Intelligence :

Practical intelligence is the ability and competence to solve problems as and when they emerge. Leaders and executives in leadership positions need practical intelligence in abundant measure. Experience, exposure knowledge and imagination help us in developing practical intelligence. Once a leader builds up practical intelligence within himself, he can form correct and appropriate judgements and arrive at sound decisions. Lack of knowledge will reduce the self-confidence of a leader. Poor knowledge inefficiency and ignorance, will be a serious constraint to one’s leadership and the same will expose him to ready attack and criticism by rivals. If the leader is knowledgeable with no negative qualities attached to him then others will admire him and may even come to him for guidance. Therefore, for playing leadership role effectively one must know his job well. There is no end to the process of learning. A responsible and effective leader is always a learner.
Reading Minds :

A leader must know his people well. He must have some knowledge of psychology so as to be able to read the minds of the people he seeks to lead. Study of psychology will enable the leader to learn and understand human behaviour and the ways in which human need satisfaction and motivation can be achieved. A leader must be emphathetic and he must treat all equally. He is one among the equals. Good leadership is always reassuring leadership. Bhagavad Gita states that doers of good things and good deeds will never fail.

A responsible and effective leader continuously engages himself in work and through the medium of work he communicates to others the importance of performing duties and responsibilities promptly and in time. A leader may have to deal with his superiors, colleagues and juniors. He must therefore learn the art adaptation. He must learn to adjust himself to the needs and aspirations of all individuals. Each man has separate and distinct personality and a point of view of his own. Different individuals will re-act differently to a given situation. Therefore, the more a leader knows his people, the greater are the chances of his success.

Divine Success :

A leader as stated in Gita must try to make the success of the group a divine success. Sharing not only the fruits of success but also the credit for success lifts any success to the level of divine success as per the preaching in Gita. A leader must learn to accept what has happened without worrying about what has not happened. This is wisdom. A leader must therefore make his people accept the reality.

A responsible leader corrects the wrong and protects the right according to Gita. In the Bhagvad Gita Lord Krishna has said:

“Paritraanaya Saathunaam
Vinaashaayacha Dush Kritaam
Dharma Samsthaapanaarthaaya
Sambhavaami Yuge Yuge”

(“To protect the good and right people
to destroy the evil and wrongs of men
to establish the right at each stage
I come at right time yuga after yuga”)

A leader must keep this constantly in mind and take prompt action to correct the wrong things and to protect the right.
A responsible and effective leader will never be fickle minded. He has no doubt regarding the action to be taken and regarding the new initiatives required. He always adopts a doubtless stand or position. Lord Krishna has clearly stated in Gita that one should not be wavering in mind and should adopt a doubtless stand.

Total concentration is an attribute of good leadership according to Gita.

Value adding leadership:

A good and effective leader establishes his credibility and transparency. If a leader keeps his word and there is no gap between his preachings and actions and he conforms to norms rules and values apart from advising others to show such conformity he will be able to establish his credibility. The leader must ensure full transparency in his functioning. A leader to be effective must give importance to values. By doing so he may provide value-based and value-adding leadership which can transform a group into a valuable team.

Credibility is a vital factor for the success of leadership. The head of an institution be it Chairman of a corporate, or a public sector bank may for the sake of projecting his image declare in his public speeches that he will ensure all promotions based on merit alone. On the other hand, he may promote officers and staff based on other considerations best known to him alone. Through such action, he will lose his credibility and his image will be tarnished. Credibility once lost is lost for ever. Leaders must therefore build up and maintain their credibility at all costs. This is crucial for leadership success. Fortune it is said favours the brave. Similarly achievement and performance also favour the brave. Leaders who are dynamic, who dare and act alone can perform. Leaders who are bold and assertive in times of need and who themselves take initiative at the right time can perform. Leaders who strike the iron when it is hot can achieve excellent results.

Performing Leadership:

Leadership which absorbs, builds up and maintains within itself the above vital factors qualities and attributes can be successful leadership. As per preachings in Gita, leadership must always be enlightened encouraging motivating and inspiring leadership. Leadership for its enduring success must be ever active, credible, responsible value-based and transparent leadership. Such leadership alone can be performing leadership.

Mobile Banking

RBI has recently issued guidelines regarding mobile banking.In its circular RBI has directed all banks to adhere to certain norms while dealing with customers through mobile phones.
According to the guidelines only banks which are licensed and supervised in Indiaand have physical presence in India will be allowed to offer mobile banking services.These services will be restricted to to customers of banks .Also only Indian Rupeebased domestic services must be provided through mobile phone.
RBI has prohibited use of mobile banking services for cross border inward and outward transfers.RBI has permitted to utilise the services of business correspondent appointed in compliance with its guidelines for extending this facility to their customers.
Only banks which have implemented core banking solutions [CBS] will be permitted to provide mobile banking servies.
As per RBI guidelines banks shall file suspicious transactions report {STR] to Financial Intelligence Unit-India[FIU-IND] for mobile banking transactions as in the case of normal banking transactions.
RBI has also made it clear that the technology used for providing mobile banking services must be secure and should be geared to ensure confidentialityintegrity and authenticity.
Customers having any mobilephones of any net work operator must be allowed to avail this service Restrictions if any to the customers of particular mobile operator is permissible only dring initial stages of offering this service up to a maximum period of six months.The long term goal of mobile banking frame work in India will be to enable fund transfer from account in one bank to to any other account in the same or any other bank irrespective of the mobile network the customer has subscribed to.This will require inter -operabilitybetween mobile banking servic providers and all banks and development of a host of message formats.Banks have been asked to adopt message formats like ISO 8583 with suitable modification to address specific needs.Banks have been permitted to offer this facility to their custmers subject to a daily cap of Rs 5000 a cusomer for funds transfer and Rs10000 a customer for transactions involving purchase of goods and services.Banks may also fix monthly transaction limit depending upon bank's own risk perception of the customer.

Article in ULUME of December 2008

An article titled''Sole Geluvige Sopana'' by K.K.Ammannaya has appeared in Ulume Kannada monthly December 2008 issue

Global Financial Crisis-Managing Capital

A new article of Dr.K.K.Ammannaya has been published in Indian Banker of December 2008.The articles is titled as-''Global Financial Crisis--Managing Capital for Risk Coverage''

New Measures Unveiled By RBI

The RBI has unveiled certain new measures on 6th December 2008 thereby giving a clear signal to banks to reduce interst rates.The Repo rate and reverse repo rate have been reduced by 100 basis points each to 6.5 percent and 5 percent respectively with effect from December 2008.This measure is likely to result in furher cut in interst rates of housing loans and other consumer loans as well as personal loans by banks.
The cumulative impact ofthe measures together with earlier measures would be to step up demand and arrest further moderation of growth.Bank credit is a vital input in development.At present it is difficult to mobilise equity from the market for business expansion and expansion of capacities by corporates.Almost all business entities including small and medium enterprises,tiny units ,self employed etc depend upon bank loans for their productive activities.All these entities can earn a reasonable margin of profit only if cost of borrowed capital i.e bank loans is reasonable andhence bank loans must be available at affordable rates of interst.Although lines of credit have not driedup in India as in US they have become scarce and costly.The present RBI action is a right step in the direction of making credit more affordable.Also there must be plentiful supply of liquidity.The earlier RBI governor went on hiking rates knowing fully well that mounting inflation was due to global factors and not on account of excess demand and excess liquidity.His action in containing liquidity and hiking rates brought about moderation of growth instead of moderation of inflation.I wrote in Bisiness Line that the governor was committing some sort f excesses in monetary tightening.Later developments confirmed what I said.Inflation came down subsequently not because of earler RBI governor's action but because of fall in commodity prices and crude oil prices globally.
The present RBI governor is moving in right direction.At the present juncture in India we need a cheap money policy.As all other avenues of raising capital for productive purposes have dried up bank loans have to assume the role of capital.Heance a chaep money policy is vitalfor accelerating economic recovery.
The new measures will surely provide a lifeline to micro and small enterprises.
The other initiatives such as ''priority'' loan classification for bank lending to home finance companies,a new refinance facility to SIDBI to small enterprises and restructuring facilities for commercail real estate exposures and viable units having cash flow problems have also beem unveiled by RBI.
While the one percentage point cut in Repo rate is but the continuation of the easing interest policy set in motion by RBI a little earlier it is cut in reverse repo rate that will have significant implications for banks.This is a signal that the RBI now thinksthat there isenough liquidity inthe system and intends to encourage banks to lend the surplus funds already made available to them.So far banks used to park surplus funds in the revrse repo account with RBI.Now call rates have moderated to the level of reverse repo rate.Now the banks may start lending as return on investment in reverse repo window has come down.
As banks are goingslow in lending to micro andsmall enterprises the RBI has opened a Rs 7000 crore refinance facility for 90 days to SIDBI which will help SIDBI funded MSEs both directly and indirectly.Bank exposures to MSE s will henceforth be less risky for banks as it gets routed through SIDBI.
The decision of RBI to classify loans granted to HFCs for the purposeof on-lending by way of retail housing loans up to Rs 20 lakhs per part may help banks and HFCs.HFCs can get better access to loans from banks.Also exposure to HFCs will become less risky for banks when compared to direct lending in housing sector.The RBI decision of RBI to classify loans extended to HFCs for onlending to individuals by way of retail home loans up to Rs 20 Lakhs will help banks in meeting theirpriority sector lending targets with ease.
RBI has also come up with guidelines to the effect that banks may restructure loans given to commercial real estate and viable units which are facing temporary cash crunch retainingthem as standard assets .
RBI has not made any changes in SLR and CRR.