To race China, first let’s get our feet off the brakes

That is a difference you would expect us to capitalise on. In practice?

The Industrial and Commercial Bank of China is China’s largest personal bank. It has more than 150 million customers. But its portfolio was so weak that, last year, the Chinese Government had to pump $ 15 billion into the bank to help bring its bad loans to what an expert calls “a controllable level”.

Yet last month, the ICBC raised over twenty two billion dollars through an IPO. This became the largest ever IPO in financial history. Upon listing, the bank’s market capitalisation amounted to $ 143 billion — that is almost twice the market capitalisation of the entire financials universe of India, which is around $ 85 billion. Its market capitalisation makes the ICBC the fifth largest bank in the world.

But there is a more telling index. Guess what the offers for subscription to the IPO amounted to? Over five hundred billion dollars.

And remember, the IPO brings down the Government holding in the bank by just 10 per cent. That is, the government retains full and complete control over the bank — even after the IPO, it will have 70 per cent of the bank’s equity.

A typical episode, with so many lessons for us in India:

• The confidence that China has been able to generate in its growth story — even in banking, its weakest sector, it can orchestrate a flood of investment.

• Its ability to take a decision and execute it.

• The funds can now be used for rehabilitation, modernisation, expansion.

By contrast, in India we have been debating whether government holding in our nationalised banks should be reduced for at least ten years. By now, what with everyone having enough power to block every proposal, we have given up even talking about reducing government equity in the nationalised banks. As a result,

• The banks continue to perform well below their potential.

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