'India's financial sectors reforms will be slow'

Financial reforms and consolidation of banks in India might get delayed due to compulsions of coalition politics and unions' muscle power, warned Simon Long, the author of A survey of business in India.

"It is unlikely that (India) may open up financial sector soon," he said on Thursday, adding that bank unions might use their 'muscle power' to scuttle a merger of state-owned banks to create a mega global banking entity.

There have been demands for increasing FDI in insurance, passage of Pension Fund Regulatory and Development Authority Bill and increased voting rights for foreign banks acquiring stake in Indian private sector banks.

While stating that higher FDI (from 26 to 49 per cent) might be allowed in insurance, Long, who is South Asia Bureau chief of The Economist, said it would be insignificant.

Asked about the need for a mega public banking entity, he said it was better to consolidate as anyway banks have to recapitalise for meeting Basel-II norms. But he feared unions might use their 'muscle power' to scuttle such a move as was evident from SBI employees unions' strike in April.

The strike by employees of India's largest bank demanding higher pension had paralysed financial transactions across the country.

"Neither does the Reserve Bank of India seems to be a great fan 'of creating such an entity'," Long said, while adding that there were fears that such a merger would be the "recipe for mass inefficiency."

Also, given the shortage of capital, it is to be seen where that kind of capital would come from to create a mega bank, he said.

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