Second, is corporate governance generally better in private sector, in particular, private sector banks? In regard to old private sector banks (i.e. founded in pre-reform era, almost all of them continue to be closely held and many of them resist broadening their shareholder base and thus avoid deepening of corporate structures. More often than not, takeover bids have been by equally closely held groups.
As regards new private sector banks, which have been licensed after close scrutiny in the reform period, the promotees were expected to dilute their stakes to below 40 per cent within three years. In two of the cases, this is yet to happen, while in most cases, the banks continue to be identified with effective controlled by promoter institutions.