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After discussing this case, the authors expect that the students will have the following learnings: critically analyse the latest Reserve Bank of India (RBI) banking proposal, which was proposed by the Internal Working Group (IWG) in November 2020. Understand concepts such as connected lending, crony capitalism and financial crisis. Have a basic idea about the Banking Regulations Act, 1949 and regulatory framework in the Indian banking sector.

This case is an analysis of the recent RBI proposal on banking regulations in India. The authors have referred secondary data in terms of published papers by stalwarts and experts in the banking and economics field. This case analyses the pros and cons of the IWG proposal to RBI governing body. The case also touches upon interesting banking and macroeconomics concepts. What makes this case interesting is that RBI is open to receive comments from all the stakeholders till January 2021.

Applicable to undergraduate and postgraduate students studying banking and finance specialisation in commerce and business management streams.

Teaching notes are available for educators only.

CSS 1: Accounting and Finance.

The purposes in this paper are: engaging in a critical examination of the framework of the banking regulatory framework in India; assessing the operational efficacy of banking regulatory and supervisory mechanisms; and providing an in‐depth legal analysis of the role of the Reserve Bank of India (RBI) as the country's central bank and the principal supervisory authority.

The method used is legal examination of regulatory practice and case‐study based analysis. It relies factually on official publications in the public domain, academic writings and newspaper reports to assess the impact of the fraud and explore the legal, regulatory and financial implications of the supervisory lapses.

The findings in the paper relate to the impact and extent of he Ketan Parekh fraud and the nature and scope of critical central banking supervision lapses. The paper concludes that such lapses can induce systemic problems in a key emerging economy like India especially when it is rapidly entering the second phase of major banking and financial reforms.

Various investigations are still underway as regards the Ketan Parekh fraud and several cases are being heard in courts and tribunals. The full extent of legal and regulatory liability is yet to be fully ascertained.

It is of immense significance to bankers, lawyers, auditors, consultants, researchers, jurists, law enforcement officials and those involved in financial and banking regulation.

The purpose of this survey is to evaluate the efficiency and effectiveness of interlibrary loan (ILL) at the RBI Library in Croatia.

Various indices were measured including: the percentage of fulfilled ILL requests, the difference between copy and loan requests, the difference between requests fulfilled free of charge and fee‐based and also to calculate the document delivery time. The analyzed data on received ILL requests were gathered via an in‐house‐developed application for ILL called SEND, via which RBI researchers submit their ILL requests to the RBI Library.

This survey showed a high percentage of fulfilled ILL requests (94.6 percent), but there was also a surprisingly high percentage of cancelled ILL requests, because RBI Library owned the requested documents (21.8 percent). Most ILL requests were copy requests and the analysis of the gathered data showed a trend of acquiring more documents free of charge. Delivery time has decreased in the period of the survey, and in 2008 it was less than six working days for copy requests and approximately ten days for loan requests. The delivery time was shorter for fee‐based requests.

This paper presents a systematic analysis of the ILL service at the RBI Library for a six‐year period (2003‐2008).

Financial access is key to achieving several economic goals in developing countries. This paper aims to construct a longitudinal village-level measure of financial access in India and understand the role of RBI's policies and village characteristics in influencing the access.

The authors adopt a spatial approach in developing a metric of financial access. In particular, they measure the distance of each unbanked village in India to the nearest banked-centre from 1951 to 2019. The authors use this measure to conduct two exercises. First, a descriptive study is undertaken to assess how RBI's policies on bank branch expansion from 1951 to 2019 influenced the proximity to bank branches. Second, the authors conduct regression analyses to investigate how socio-economic and demographic characteristics of villages influence their proximity to bank branches.

The average distance of an unbanked village to the nearest banked-centre has declined from 43.5 km in 1951 to 4.2 km in 2019. The gain in bank access has varied geographically and over time. In 2001, bank branches were relatively distant from villages with under-privileged caste groups and proximate to areas with better infrastructure. This relationship worsened after 2005 when RBI introduced liberalized branch expansion policies. By 2019, proximity responds much more adversely to the presence of underprivileged groups. At the same time, banks have moved closer to economically better-off villages and villages with workforce in non-farm enterprises rather than agriculture.

First, studies in the Indian context focus on state-level determinants of bank branching, this is the first study to develop a longitudinal measure of financial access at the village level. This helps to understand spatial heterogeneity in bank branch access within states, which other studies are unable to do. Second, the paper analyses the role of village-level socio-economic and demographic characteristics in proximity to bank branches. This analysis helps in discovering micro-foundations of growth of bank branch network. The granularity of the approach adopted here overcomes the confoundedness problems that the studies at a more aggregate level face.

To argue a case for a paradigm shift in the way urban cooperative banks (UCBs) are managed, governed, and regulated in India to enable them to enhance their contributions to achieving greater degree of financial inclusion, and more broad‐based growth.

The paper first surveys the quantitative importance of the UCBs in India, and their key performance indicators. Various official reports by the country's Central Bank, the Reserve Bank of India (RBI), and other relevant organizations are used extensively. The paper then identifies key areas of reforms, centering primarily on the current business model, governance and regulation practices, and capital adequacy. It then argues for a change in a paradigm shift by the UCBs, and how better governance and regulatory structure can assist this shift.

The paper finds that if the UCBs are to remain relevant and play a significant developmental role in India, they will require same quality of governance and regulation as well as professionalism and modernization as the mainstream commercial banks. The governance and regulatory structures need to be brought in conformity with India's current and prospective economic structure; and relevant laws modernized. This requires a paradigm shift in the role of UCBs.

The research has been based primarily on secondary sources, particularly various reports by the RBI, the country's Central Bank. Better understanding of the reasons for differences between well‐governed and financially sound UCBs on one hand, and those that are not, requires focused interviews and more searching examination of the operating environment and financial statements of a sample of the UCBs. This could be the next stage of research.

This paper represents a part of public debate on ways of integrating the UCBs into the mainstream banking sector. This is an important public policy issue as even though the UCBs represent relatively small proportion of the total banking assets, they still represent a systemic risk to India's financial system, and without reforming them, broad‐based economic growth would be difficult to achieve.

Indian monetary policy performed reasonably well in the past, while both strategy and operational framework were evolving on par with domestic financial and monetary markets. The purpose of this paper is to document how this good track record came to an abrupt stop in recent years as inflation rose sharply and, more worryingly, expected inflation followed suit.

This paper has analytical, empirical and policy dimensions. Given the recent surge in inflation in India, as well as in inflation expectations, a discussion of the role of monetary policy is needed. This is presented by resorting to survey evidence on expectations as well as to indirect evidence inferred from the market reactions to macroeconomic news.

The authors documented the unhinging of inflation expectations in India in the aftermath of the financial crisis. The evidence gathered leads to the conclusion that both the monetary policy strategy and framework of the Reserve Bank of India would benefit from further evolution in the direction of a precisely defined and overarching objective (price stability), instead of the present multiplicity of goals, and of a well‐defined operating target, enhancing the transparency, communication and signalling effect of policy moves. The authors suggest that embracing a flexible inflation targeting approach is a possible solution.

This is a highly topical issue that has attracted a great deal of attention in policy discussions, both in India and in the region. Very few papers combine the analytical and empirical considerations in this topic.

The learning outcomes of this study are to gain an understanding of the banking regulations and their impact on banking performance, to understand the intermediation role of banks by channelizing depositors’ savings and providing loans to borrowers, to explain an impact of a recent regulatory change in the Indian banking that directly impacts their financial performance, to critically evaluate the different financial ratios to analyze the performance of a bank and to build a DuPont analysis framework for banks.

The case serves as a primer on banking regulations in India and provides insights into banking performance. Banking regulations play an important role in maintaining financial stability, specifically in emerging economies like India. The protagonist of the case is Salil Kumar who presented his internship project to the review committee of Stock Investment Company on April 16, 2021. However, he had to rework and present his final project within seven days on the basis of the feedback received from the committee. Kumar faced the dilemma of bringing together a comparative study across two banks, namely, Industrial Credit and Investment Corporation of India (ICICI Bank) and State Bank of India (SBI) and building a DuPont framework covering the different aspects of banking performance. The case exemplifies the intricate regulatory landscape in India within which banks operate and highlights the recent alterations introduced by the Reserve Bank of India. For instance, the framework for dealing with domestic systemically important banks (D-SIBs) was introduced in 2014 and subsequently adopted in August 2015. The D-SIB framework provides inherent guarantee to large banks such as ICICI Bank and SBI. This ensures government backup in the event of any failure, thereby securing financial stability. The case study is suitable for banking and financial accounting courses taught in postgraduate management programs. Once the case is studied, the students are expected to understand the basics of banking, regulations, impact of regulations on banking performance and financial measures.

The case provides valuable insights into the intricate dynamics of the banking industry, offering a critical perspective for analysis. A well-structured teaching note would serve as a valuable tool for instructors, allowing them to facilitate engaging classroom discussions and effectively guide students toward achieving the desired teaching objectives.

Teaching notes are available for educators only.

CSS 1: Accounting and Finance.

The academic literature has examined why bank runs happen based on the work of 2022 Nobel Prize-winning economists Diamond and Dybvig. They have found the source of banking/financial crisis in terms of mismatch between liabilities (deposits being short term and savers wanting to short-term access to their money) and assets (long term and illiquid). The Lakshmi Vilas Bank (LVB) crisis intensified when it came under Prompt Corrective Action (PCA) of the Reserve Bank of India (RBI). This situation provides the opportunity to study whether the elements embodied in the theoretical models like Diamond and Dybvig hold true for LVB crisis. This study aims to examine the reasons for the demise of LVB in India using DuPont financial model, peer group analysis and time series structural break in crucial financial parameters.

The study examines the reason for insolvency of LVB using financial ratios, financial models (DuPont), financial distress model (Z-score) and asset-liability management. The study also adopts univariate structural break models using quarterly financial data covering the key financial measures used in the RBI’s PCA framework.

LVB crisis is like Diamond–Dybvig model, in the sense, savers requiring short-term access to their money (liquidity for their deposits) on the information of high non-performing assets, which further deteriorates the illiquid nature of loan portfolio (assets) of banks. The study finds its profit margin (net interest margin and non-interest margin) and managerial efficiency had started deteriorating since 2018. The study finds that LVB’s main weakness lies in its limited credit appraisal ability, its monitoring and weak internal controls. Lending to sensitive sectors (like real estate, capital markets and commodities) and exposure to large business groups also contributed to its weakness. The study also finds huge, elevated asset-liability mismatch, especially in the short-term maturity buckets. Using univariate econometric time series model, the study also confirms financial weakness being evident much earlier than the time when resolution was undertaken by the RBI through PCA.

The study has implications for analysing and monitoring financial distress of banks. The study also has implications for devising banking regulation and supervision.

The study brings in a perspective of the banking regulations using the application of PCA framework on a listed private sector bank. The authors combine an accounting ratio model and combine risk measures that could identify the incipient risks in a bank. The authors believe this will help in refinement of banking regulations and better monitoring mechanisms.