Mrunal Banking: RRB Amendment Bill, Small Banks-Payment Banks

Mrunal Banking: RRB Amendment Bill, Small Banks-Payment Banks
14/02/15 11:29 pm
- Mrunal - http://mrunal.org -
[Banking] RRB Amendment Bill, Small Banks-Payment Banks,

Kotak-ING Vysya Merger, NBFC Guidelines
Posted By Mrunal On 26/12/2014 @ 2:55 pm In Economy | 60 Comments
1.
2.
3.
4.
Prologue
BO1: RRB act
BO2: Small banks and Payment Banks
BO3: Kotak-ING Vyasa Merger
1. Banking consolidation in past
2. Kotak ING Vyasa Merger
3. Bank merger/consolidation: good or bad?
5. BO4: NBFC regulation guidelines
6. BO6: SBI Share splitting
7. Mock Questions for Banks Exams
Prologue
In this article, well checkout a few current developments in Banking sector at
Organizational level.
In the next article, well see developments at operation / product level e.g.
Bharatiya Bill Payment system, SBIs Shariya fund, E-mandate etc.
Utility: Mainly for bank interviews and MCQs.
BO1: RRB act
http://mrunal.org/2014/12/banking-rrb-amendment-bill-regional-rural-banks.html/print/
Page 1 of 10
14/02/15 11:29 pm
Background theory
1976: Regional Rural banks Act, based on Narsimhan Committees
recommendations for greater financial inclusion.
RRBs aim to combine efficiency of a commercial bank with grassroot networking of
a cooperative society.
RRB is one type of Commercial bank. Therefore, it has to comply with RBIs SLR,
CRR and PSL requirements (Priority sector lending).
Sponsor bank helps the RRB in HRM-training, account keeping services.
Anyways, RRB is an old theory topic, why has it resurfaced again?
Salient features of RRB Amendment Bill 2014
RRB Act 1976
RRB Amendment Bill 2014
5 lakh shares x
Rs.100 each
Total authorized
capital: Rs.5 crore
200 crore shaers x Rs.10 each

Total authorized capital: Rs.2000 crores
Shareholding
Union: 50%
State: 15%
Sponsor Bank:
35%
State governments
shareholding was fixed
RRB can issue shares in capital market to get more

funds from private investors.
But one condition that combined shareholding of
Union+State+Sponser bank should not fall below 51%
States can buy more shares, to increase their shareholding
Page 2 of 10
to 15%
14/02/15 11:29 pm
above 15%
RRB can appoint Board of directors from outside union-state
and sponsor bank nominated people.
One person cannot become director in 2 RRBs.
Directors tenure limit: 2

3 years
years
Person cannot remain director for more than 6 years.
(Meaning one individual can be an RRB director for only two

terms 3 + 3.)
AIFI: All India financial institutions, PD: Primary Dealers
BO2: Small banks and Payment Banks

Timeline of Events leading to Small / Payment Banks
1998 Narsimhan-II Committee recommends small banks in India.
2009 Raghuram Rajan Committee says the same.
2013- For greater financial inclusion, RBIs Nachiket Mor Committee had recommend
14
new types of banks such as payment banks and wholesale banks.
2014, Bimal Jalan Committee approved Bandhan Microfinance and IDFC for opening
Feb- private commercial banks. Bimal too recommended RBI to permit
March differentiated banks in India.
2014,
Nov Rajanbhai invites applications for Small banks and payment banks.
Page 3 of 10
14/02/15 11:29 pm
Common Features of Small bank and Payment banks

1. Deadline to apply for License: 16/01/2015. After that, an external screening
Committee will decide the winners, probably in July 2015.
2. Minimum capital requirement to apply for license: 100 crores. (For commercial bank
license, it was Rs.500 crores)
3. Theyll have to comply with the FDI norms like regular commercial banks i.e. 74%
FDI only.
Small banks
Whats the difference?

Payment banks
Can accept all types of deposits

like a commercial bank (CASA,
FDRD etc.)
They can give out

depositors money as loans
to other customers, but
small area of operation.
Theyll be opened under
Companies Act 2013.
Take deposit only on current account, saving

account. (CASA)
Cannot accept fixed deposits (FD)
Can issue Credit card? Nope.
Can issue debit card? Yes.
Can open NRI accounts? Nope
They cant give loans. They can invest
depositors money in Government securities
(G-sec) only.
Although theyre allowed to sell mutual funds,
insurance and pension products, accept utility
bill payments etc. to keep branch operations
profitable.
Target customers: MSME

businessmen, unorganized
workers, small and marginal
farmers.
Target customers: poor, migrants, unorganized

workers wanting to send remittances home.
Focus: Deposit and loans
Focus: Payment/remittances only. Including crossborder remittances.
Who can apply?

Who can apply?
MFI, NBFC can convert
their organization into small
banks
Even individual with 10
years experience in
bank/cooperative sector can
apply for license.
Large companies cant
apply.
Conditions:
25% branches in rural area
50% of the loans be given
Indian Post
Corporate houses
Telecom companies
Retail chains.
Above people can even launch payment
banks with Joint venture from commercial
banks.
Condition:
Maximum balance per customer: Rs.1 lakh
Minimum Leverage ratio 3% i.e. liabilities
should not exceed 33 times of its networth.
Page 4 of 10
14/02/15 11:29 pm
to MSME sector.
Remaining differences are of technical nature like tier-1 capital etc. not worth the
effort for MCQs.
Public sector bank employee union has opposed this move, saying existing public
sector banks are capable of delivering these services and last mile financial
inclusion.
BO3: Kotak-ING Vyasa Merger

2000
2001
2002
2003
2004
2005
2008
2014
Banking consolidation in past

TIMES Bank merged in HDFC
Bank of Madura merged in ICICI
Benares State bank (Public sector bank) merged with BoB (Bank of Baroda)
Nedungadi bank (Kozhikode) merged with PNB (Punjab National Bank)
Global Trust Bank merged with OBC (Oriental bank of Commerce) after media
reports that Global trust bank had financed Ketan Parekhs sharemarket scam.
Bank of Punjab merged with Centurion bank
Centurion bank itself merged with HDFC
Latest: ING Vysya merges with Kotak Mahindra bank.
Kotak ING Vyasa Merger

RBI, CCI and other financial regulators have approved the ING-Vysya Bank to merge
with Kotak Mahindra bank (2014, November).
Kotak Mahindra
ING Vysya bank

1930s: Vysya bank born to cater Banglore, Mysore,
Karnataka region.
1958: Got license from RBI to open all India
branches.
2002: Vysya bank (Indian) merged with Dutch ING (a
Foreign bank). Thus ING Vysya Bank born
2014: now ING-Vysya to merge with Kotak Mahindra.
Got Banking license in

2003
4th Largest private bank

Founder: Uday Kotak
After Merger
Kotaks total asset
~2.1 lakh crore
rupees
Total branches
~1,215
7th
Shailendra Bhandari (CEO)
Uday Sareen (Dy.CEO) he will be inducted in Kotaks
board after merger
After merger,
ING Vysya shareholders will get 725 shares of Kotak
for every 1000 shares of ING-Vysya.
ING Vysyas staff and branches will become part of
Kotak-Mahindra bank.
Page 5 of 10
14/02/15 11:29 pm
Ranking of private Indian banks after this merger: (1) HDFC (2) ICICI (3) Axis (4)
Kotak.
Kotak group also got in-principal approval to takeover general insurance business
from ING-Vysya.
Bank merger/consolidation: good or bad?
Pro arguments
Anti-arguments
Bank consolidation will reduce cost
of operation and increase efficiency
of services.
Therefore, small-sized public sector
banks should be merged with SBI.
This will help meeting capital
requirements under BASEL-III
norms
Will help Indian banks get in top-5
world banks list with large asset
size.
May create oligopoly and shadow

banks.
American Sub-prime crisis was a
result of shoddy practices by such
Banking oligopolies.
BO4: NBFC regulation guidelines

Background
Non-banking financial companies serve as an important tool for financial inclusion
and turning savings into investment.
But, in the 90s, Harshad Mehta and other scams put all Non-banking financial
companies into bad light.
As a result, RBI and Government always adopted precautionary and sometimes
step-motherly regulations on NBFCs. For example- theyre not allowed to get taxbenefits on NPA, mosto f them forbidden from external commercial borrowing
(ECB), they are not given loan recovery powers under SARFAESI Act and so on.
2014, November: Finally, Rajanbhai decided to empower NBFCs, on par with
Commercial Banks.
RBIs new guidelines for NBFCs:
[no *that* important for MCQs, just memorize a few points for interview]
Fair practice code (FPC) and Know your customer norms (KYC) will not apply to an
NBFC IF
1. Its asset size is less than Rs.500 crore AND
2. It doesnt accept deposits from public AND
3. It doesnt have any customer interface.
RBIs Roadmap for NBFCs
2014
Each NBFC has to keep minimum Rs.25 lakh as Net Owned funds.
Stringent norms for keeping capital in Tier-1 and Tier-2 Assets.
Page 6 of 10
2016
14/02/15 11:29 pm
NBFC will have to keep minimum Rs.1 crore in Net owned funds.
NBFC will have to compulsory undergo credit-rating before accepting
public deposits.
2017
Keep minimum Rs.2 crores as net owned funds ELSE RBI will cancel that
NBFCs registration.
2018
For commercial banks, if client doesnt pay loan installments for 90 days,
its classified as Non-performing-asset. (NPA)
NBFCs will have the same asset-classifications by 2018.
Benefit? NBFCS will get tax-exemption from NPA-related income, just like
regular banks. Right now only 1 category of NBFC gets this benefitHousing finance companies.
Allowing NBFCs to use SARFAESI Act powers to teach lessons to loanNot

defaulters. [Securitisation and Reconstruction of Financial Assets and
done
Enforcement of Security Interest Act]
BO6: SBI Share splitting

Earlier: ICICI and PNB announced share splits- One share divided into five.
SBI announced 1:10 share split in 2014, November. Meaning, youll get 10 shares
of SBI, for every exiting 1 share owned by you.
Before 1 share with Face value of Rs.10
After 10 shares with face value of Rs.1
Benefits of share-splitting?
Increases in share-quantity, thereby increases the participation of Retail investorslike cutting one banana and selling five of its pieces.
Provides liquidity to investor. Example, if you had 1 share of infosys worth Rs.1
lakh, itll be difficult to find a buyer.
But if you had 1000 shares of infosys worth 100 rupees, easier to find a few buyers
interested for purchasing 20-30 shares individually.
Thus share-splitting increases demand and new investors. Hence P/E Ratio also
improves. [Share Price to earnings ratio.]
Share splitting or stock splitting, doesnt change following
Companys value. because Total face-value wise, 1 share x Rs.1 lakh = 1000
share x 100 rupees.
Companys market capitalization. For the same reason given above.
Mock Questions for Banks Exams

Q1. Consider following statements about RRBs
A. RRBs are jointly owned by Government of India, the concerned State Government
and Sponsor Banks
B. In RRB, the sponsor bank is the majority shareholder.
C. Both A and B
Page 7 of 10
14/02/15 11:29 pm
D. Neither A nor B
Q2. The RRB Amendment Bill 2014
1. Provides flexibility to shareholding pattern of Union, states and sponsor banks.
2. Increases authorized capital of RRBs.
3. Permits Individual to hold board directorship in multiple RRBs
Correct statements are
A.
B.
C.
D.
Only 1 and 2
Only 2 and 3
Only 1 and 3
None of them
Q3. If an RRB has failed to fulfill its PSL quota for the given year, then itll be
required to submit money to ____.
A.
B.
C.
D.
NABARDs RIDF
SIDBIs RIDF
NABARDs SEDF
None of above.
Q4. Which of the following is/are example(s) of Differentiated banks in India?

1. Small banks
2. RRBs
3. Payment Banks
Answer choices
A.
B.
C.
D.
Only 1 and 2
Only 2 and 3
Only 1 and 3
All of them
Q5. Minimum capital required to apply for license of small bank / payment bank is
____.?
a.
b.
c.
d.
100 crores
200 crores
500 crores
1000 crores
Q6. Who among the following is/are eligible for applying small bank license?
1. An individual with experience in cooperative or banking sector
2. Corporate houses
3. Non-Banking financial companies
Answer choices
A. Only 1 and 2
Page 8 of 10
14/02/15 11:29 pm
B. Only 2 and 3
C. Only 1 and 3
D. All of them
Q7. Which of the following features are not available at a Payment Bank?
1. Getting housing loans
2. Getting a Credit card
3. Opening a current account.
Answer choices
A.
B.
C.
D.
Only 1 and 2
Only 2 and 3
Only 1 and 3
All of them
Q8. Who among the following, can open an account in Small bank?
1. NRI
2. High net worth individual
3. Migrant laborer
Answer choices
A.
B.
C.
D.
Only 1 and 2
Only 2 and 3
only 3
All of them
Q9. A Payment bank will have to fulfill which of the following condition?
A.
B.
C.
D.
40% of the loans must be given under priority sector lending (PSL)
25% of the NDTL must be invested in G-sec.
Maximum balance per client cannot exceed Rs.50,000
None of above.
Q10. Which of the following mergers took place in 2014-15?

1. Benares State bank with BoB
2. Bank of Madura with ICICI
3. ING Vysya with Kotak-Mahindra
Answer choices
A.
B.
C.
D.
Only 1 and 2
Only 2 and 3
only 3
All of them
Q11. Arrange the following banks in descending order of their total-assets?

1. Kotak-Mahindra
Page 9 of 10
14/02/15 11:29 pm
2. Axis
3. ICICI
4. HDFC
Answer choices
A.
B.
C.
D.
1234
4321
1243
2134
Q12. How does an investor benefit from Stock-splitting?

1. It increases market capitalization of the said company.
2. It decreases the liquidity of stocks held by him
3. It increases the dividend earned by him
Answer choices
A.
B.
C.
D.
Only 1 and 2
Only 2 and 3
Only 1 and 3
None of them.
Interview
1. What do you know about RRB Amendment bill? How will it benefit Indian economy?
2. What are your views on consolidation of Public sector banks in India?
Visit Mrunal.org/Banking for more articles related to Banking, Finance and Insurance.
Article printed from Mrunal: http://mrunal.org

URL to article: http://mrunal.org/2014/12/banking-rrb-amendment-bill-regional-ruralbanks.html
Copyright 2014 Mrunal. All rights reserved.
Page 10 of 10

Mrunal Banking: RRB Amendment Bill, Small Banks-Payment Banks

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Mrunal Banking: RRB Amendment Bill, Small Banks-Payment Banks

Hochgeladen von

Copyright:

Verfügbare Formate

Mrunal Banking: RRB Amendment Bill, Small Banks-Payment Banks

[Banking] RRB Amendment Bill, Small Banks-Payment Banks,

BO1: RRB act