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[Economy] New Bank Licences: Bandhan, IDFC, Bharatiya Mahila Bank; Differential Bank
licences, Bimal Jalan Committee, Narsimhan Committee; arguments favor against, Bank
nationalization, Historic evolution of Banking sector in India
1. Prologue CSAT क ल क सु
बह
2. Banking sector in British India
3. Birth of RBI 26 23 11 178
4. Banking sector Post Independence days hrs mins sec.
Prologue
important: SSC has uploaded halltickets for reexamintion of CGL-2013 to be held on 27th April.
Respective players check your regional SSC sites accordingly. now coming to the subject…
Bandhan and IDFC got new licences, you already know that. it’s just two line current affairs. but for
SBI /UPSC interviews, we need to some background information for questions like:
1. After Sahara Scam and NSEL crisis, why should we risk giving bank licences to private
companies? In fact why not simply nationalize the existing private sector banks so they cannot
do any scams!?
2. We already have large banks such as SBI, ICICI, BoB- all of them having pan-India presence,
capable of fulfilling the goal of financial inclusion, then why is there a need to get new private
sector banks?
To answer such “Devil’s advocate” type interview questions, we need to go back in history:
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7/29/2014 New Bank licences: Ready revision note for IBPS & UPSC
Overall, neither British Banks nor Swadeshi banks helped in the financial inclusion of poor people,
they still had to rely on local money lenders and Zamindars.
Birth of RBI
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Click to Enlarge
Nationalization
starts nationalizing banks (By taking over the ownership from those industrialists)
How
Year who?
many?
moral of the story = nationalization is not a solution – even if Sahara, NSEL, Ramalinga Raju, Ketan
Parekh, Harshad Mehta or Mr.XYZ is doing scam- that doesn’t mean you should nationalize
everything.
recommendation result?
NBFC regulatory
framework done
6 running
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1. ICICI
2. HDFC
3. UTI=>became Axis bank (2007)
4. IDBI
5. Indus
6. DCB
All of above running successfully, so that gives us “positive arguments”- that not all private entities
are seamstress. in fact, ICICI, HDFC, Axis = top banks of India, even have presences abroad,
employ lakhs of people. Hence no harm in giving bank licences to private players.
4 closed down
merged
Bank why?
with
Centurion
HDFC same as above
bank
Times
HDFC same as above
Bank
These four #EPICFAIL banks give us the “negative arguments” that private companies must not be
given bank licences. Because they can also close down like ^these, creating panic among the
clients, blood pressure, heart attacks and suicides.
Anyways, moving on
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7/29/2014 New Bank licences: Ready revision note for IBPS & UPSC
From the earlier #EPICFAIL of those four banks, RBI also learned lesson.
1. Kotak Mahindra
2. Yes Bank
1. must include class 10-12-college marksheet, school leaving certificate and three passport
sized photos
2. 10 years’ successful work-ex (=”Fit and proper” criteria)
3. minimum capital Rs.5 billion
4. Will have to get shares listed on stock exchange within three years, bring down voting rights to
15% within 12 years. why?
say Anil Ambani gets licence, in the beginning he’d have ~100% ownership and decision
making. But in the long run such “one man game show” = not good in banking sector. So he’ll
have to get the shares listed within three years.
once shares are listed, junta starts buying those shares= they elect the board of directors
(BoD) and then BoD makes policy decisions of the bank, appoints CEO and top executives and
so on.
By 15 years, Anil should sell majority of his shares to junta- so that he holds barely ~40% or
less of the bank shares = he cannot have lot of “say” in bank’s decision making = bank doesn’t
run according to his whims and fancies =rational decision making.
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5. foreign shareholding must not be more than 49% (for the first five years)
6. 50% of the directors should be independent (=not chosen by majority shareholder e.g. Anil)
7. Such bank must not invest in shares/bonds of its parent group (e.g. Anil’s telecom/electricity
business)
8. must have viable business plan
9. must open atleast 25% branches in the unbanked rural areas. (as per latest census there are
~10000 such places)
10. Have to comply with PSL (priority sector lending) norms.
Many other technical rules but for descriptive/interview answer- above 9-points sufficient.
Total 26 applied, including Anil Ambani, Birla, Bajaj, Tata, Muthoot, Indian post.
later two left (TATA, Videocon)
+ one came (KC Land and finance ltd.)
Thus 25 left.
Sep 2013: Rajan sets up RBI High level advisory Committee to process those applications.
Important: Bharatiya Mahila Bank also launched in Sep’13 (but its public sector bank, has nothing to
do with this “third” round of Bank licences or Bimal Jalan Committee)
Anyways, moving on
November
Bimal first meeting
2013
February
Bimal submits report
2014
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net worth 1100 Cr., 45% net worth 21000 cr., but rural
branches in rural areas presence low.
In principle approval
Within 18 months
must get net worth Rs.1000 crore
Must open 25% branches in unbanked rural areas.
once they fulfill above conditions, RBI will give them licence under Banking Regulation Act, 1949
[Sec.22(1)]
Once they get licence under BRA, then we can open current account, savings account etc.
RBI has also prohibited the promoters (Ghosh and Lall) to hold CEO position in their respective
banks. This is meant to prevent conflict of interest. Because in past, Global Trust bank’s CEO
Ramesh Gelli was accused of involved in Ketan Parekh scam.
Curiously though Yes Bank’s promoter Rana Kapoor enjoys both MD and CEO position in his bank!
India post
For Indian postal department, Bimal Jalan said “RBI should consult separately with government
and give licence if necessary.”
Kumar Mangalam Birla’s name involved in Coal block scam, Anil Ambani in 2G case, hence
licence not given.
Total 25 applied, but only two won so what about the remaining 23 contenders? Will they get
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1. Wholesale Banks
2. Payment Banks
as a Microfinance company,
Bandhan cannot open savings
account / current account etc
(Because they don’t have bank
licence)
as a result, such microfinance
As per your own table, companies have to borrow money
Bandhan already has from other banks, NABARD etc
45% of her branches in @12-15% interest + have to
rural area as maintain profit margin=> they give
microfinance company, loans to poor people yes, but at
then why do they need 23-25% interest rate.
bank licence? They’re but if same Microfinance
already doing financial company was given bank
inclusion! licencee, they can accept public’s
deposit money under savings
account ~4% interest, fixed
deposit ~9% interest => cheaper
way to arrange loan money. can
give loans to poors at reasonable
rate like 10-15%
The same ICICI Bank, RBI has taken quick and firm action
HDFC Bank and Axis against those three banks. And the
Bank were caught inquiry revealed it wasn’t the mass
violating KYC norms and scale organized money laundering
doing money laundering operation but irregularity on part of
case in the Cobra post certain branch managers to
sting operation. overcome the “targets”.
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7/29/2014 New Bank licences: Ready revision note for IBPS & UPSC
Rajan’s “American”
ideas of free market,
Just two new banks cannot create
wholesale banks,
Subprime crisis. RBI is much more
differential licenses etc.
vigilant and strict than their American
will ruin Indian banking
counter part US feds. It is wrong to
sector and Economy.
assume that Rajan comes from
What works in USA
America so he is automatically an evil
need not automatically
capitalist, and all the “hushiyaari”
work in India as well.
(smartness) is with Newspaper
This will lead to
columnists in The***** only.
subprime crisis like
disaster.
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7/29/2014 New Bank licences: Ready revision note for IBPS & UPSC
This has nothing to do with Bimal Jalan Committee or third round of private bank licences. But to
confuse you in MCQs, the examiner will deliberately include some facts related to Mahila bank.
Therefore, you must know the basics:
Budget 2013: Chindu announced to open this bank with 1000 crore Rs. (=100% State Owned /
public sector bank.)
Keep in mind, Chindu also setup “Nirbhaya fund” for women security initiatives. But that’s
separate 1000 crore fund and this is separate 1000 crore bank. (tricky MCQ)
Concept is not new: Pakistan and Tanzania already setup such banks in past.
MBN Rao Panel prepared blue print (he was chief of Canara bank)
Sept. 2013: licence given
November 2013: bank launched on Indira Gandhi’s b’day.
HQ= Delhi but since assembly election was going on, hence to follow the model code of
conduct, they launched the bank from Mumbai
Software
as such most desi banks use “finacle” core-banking software designed by Infosys
But this Mahila bank got Core Banking Software by FIS (American Co.)
(^ya this type of GK essential for IT-graduates for the bank interview stage.)
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(Interview Q.) Bharatiya Mahila Bank is a mere symbolic exercise for feel good publicity. Do you
agree? Yes/No and Why?
I already mentioned the Positive points 1 cr. loan without collateral, skill development for women etc.
But in Group discussion/ interview, you need to be aware of the negative points as well, in case the
other party decides to play “Devil’s advocate”.
1. SBI, PNB, BoB better suited, they have pan-India presence including in rural areas. Govt.
already majority shareholder. Could have launched the 1 crore without collateral scheme
without Mahila Bank.
2. 25% rural branching: duplication of effort.
3. In the first phase focus on state capitals and UT = real need of women financial inclusion is in
rural areas and not those big cities.
4. Mid-level executives all “imported” from BoB, PNB etc. such deputed staff usually don’t have or
motivation to put their blood and sweat in making this new bank successful. Their loyalty
remains with their own parent bank only.
5. They’re offering 4.5%/5% interest rate on savings account but pan India presence necessary,
otherwise customers won’t feel attracted. Besides private banks like Kotak already offering 6%
Visit Mrunal.org/Economy For more on Money, Banking, Finance, Taxation and Economy.
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