conducive for fostering healthy competition. having said all this, there is an important issue, which we cannot lose sight of. one of the major comforts that a regulator seeks as part of its depositor interest centric function is the reputation and the financial strength of the promoter. from this perspective the nation ’ s sovereign as the main shareholder gives a lot of comfort to the regulator. the recent events, even if one may consider them exceptional, demonstrated that those perceived as invincible also do not have the financial muscle of the sovereign. however, the regulator should not bask under the comfort of the sovereign being the promoter nor should it let any instruments of government abuse this comfort. the punch line, if one has to sum up the whole gamut of issues relating to regulation and supervision of public sector banks, could read – feel comfortable, but don ’ t relax! thank you all for your attention.

yandraduth googoolye : supervision and regulation of state - owned banks address by mr yandraduth googoolye, first deputy governor of the bank of mauritius, at the financial stability institute, world bank and international monetary fund seminar on “ supervision and regulation of state - owned banks ”, hosted by the reserve bank of india, mumbai, 5 november 2008. * * * distinguished guests, ladies and gentlemen, i am very pleased to be in mumbai today to share a few thoughts on supervision and regulation of government - owned banks. i must at the outset compliment the financial stability institute, world bank and international monetary fund for having chosen this issue as the theme for this seminar. no subject could be more topical in the current context given that we are seeing in the west a reverse process of private banks getting wholly or seminationalized. therefore, the lessons of this seminar, which is targeted at the emerging economies, could be useful for the developed world as well, in a more meaningful way than perhaps they might have been a few weeks ago. before getting to the theme of regulation and supervision of government - owned banks, let us see the different ways in which government can have stakes in banks. firstly, government ownership can arise at the initial shareholding stage, i. e. an entity in which government has majority shareholding applies for a banking licence. secondly, government may set up a bank or nationalize existing bank ( s ) through an act of parliament to further its social and developmental objectives, and thirdly government could acquire shares in an existing bank to bailing out a failing bank, something quite fashionable these days! indeed there is an extensive literature and a lot of debate on the role of government ownership in banking. it would perhaps be useful to briefly touch upon some of the theories that have been put forward on government ownership in banking. the views that have been more frequently associated with state ownership of banks are the social view, the political view and the agency view. the social view suggests that government - owned banks contribute to economic development and improve general welfare ( atkinson and stiglitz ( 1980 ) ). the political view highlights the role of politicians in pursuing their personal goals, for example maximizing employment of their electorate or financing favoured enterprises ( shleifer ( 1998 ) ). the agency view relates to the agency costs in government bureaucracy that may result in managerial inefficiency ( banerjee ( 1997 ), hart, shleifer and vishny (