On 22 February 2013, RBI released the guidelines in relation to new banking licenses

it plans to allot. RBI has not stated the number of licenses it would be issuing but
analysts believe that it should not be more than four. In such a situation, RBI is surely
going to have a tough time choosing the best especially when majority of large-scale
firms in the country are diversifying and looking out for opportunities.
To make things more interesting, RBI has not restricted any sector or industry to apply
for the banking license. As per the norms released by RBI, any private or public
company can apply for the license.
Let us summarize the guidelines released by RBI:
Owners/Promoters:
Any Indian group or entity shall be eligible to promote a bank through a wholly
owned Non-Operative Financial Holding Company (NOFHC). The group/entity
certainly should be having sound financial condition, integrity, credentials and must
be operational for 10 or more years. The NOFHC will be registered as a non-banking
financial company (NBFC) with the RBI and will be governed by a separate set of
directions issued by RBI.
Broadly understanding, the corporate structure as defined by the RBI norms seems to
be fairly simple. The promoter group/parent company must hold minimum 51% stake
in the NOFHC (an individual not holding more than 10% voting equity) and the
NOFHC must hold at least 40% voting equity capital in the new bank.
Minimum Capital:
The initial minimum paid up capital of the new bank should be INR 5 Billion out of
which at least 40% should be directly held by the NOFHC which can be brought down
to 20% after 5 years of the functioning of the bank and to 15% after 10 years.
Capital Adequacy Requirements:
NOFHC along with the bank and its other entities would be required to maintain a
minimum capital adequacy ratio of 13% of its risk weighted assets for a minimum
period of 3 years.
Foreign Direct Investment (FDI):
The FDI in the new banks should not exceed 49 per cent of the paid-up voting equity
capital for the first 5 years from the date of licensing of the bank.
Other Miscellaneous Factors:
NOFHC or any of its financial entities should not have any credit and investment
(including investment in equity / debt capital instrument) exposure to any entity
belonging to the Promoter Group except those held under it. The NOFHC should
comply with the corporate governance guidelines as issued by RBI from time to time.
RBI has also stated that the new bank should have at least 25% of its branches in
unbanked rural areas with population up to 9,999.
Procedure for Selection:
Broadly there will be only two steps involved:
1. At the first stage, RBI to ensure prima facie eligibility of the applicants will
screen the applications. RBI might apply additional criteria to determine the
suitability of applications, in addition to the fit and proper criteria. Thereafter,
the applications will be referred to a High Level Advisory Committee to be set
up by RBI.
2.The High Level Advisory Committee will set up its own procedures for screening
the applications. The Committee will reserve the right to call for more information as
well as have discussions with any applicant/s and seek clarification on any issue as
may be required by it. The Committee will submit its recommendations to RBI for
consideration following which RBI will issue in-principle approval for setting up a
bank. Corporates will have 18 months to implement a bank license.
Opportunities:
With a population of over 1 billion, India is undoubtedly a great playground for any
business. Banking industry in the country is extremely regulated by RBI and there are
severe penalties in case of any misconduct. That is how India has managed to survive
global financial turmoil. Hardly any bank in the country has non-performing assets
more than 10% of their total assets.
Introduction of private banks have not only made banking accessible for many, it has
also turned Public Sector Banks (PSB) into aggressive mode with increased
efficiency.
Both Yes Bank as well as Kotak Mahindra Bank has ensured that RBIs decision to
issue them license have been rightly justified and both of them are among the top
banking firms in the country. The sentiment among investors is also extremely
positive when it comes down to banking sector in India. The banking sector is the
largest constituent of Indias total market capitalization at around 25 percent.
The National Stock Exchanges Nifty banking index, a barometer of banking company
stocks, has risen 50 percent in the past one year, belying general economic
performance and expectations from the banking business.
Also, demographic shifts in terms of income levels and cultural shifts in terms of
lifestyle aspirations are changing the profile of the Indian consumer. The per-capita
income in India has crossed INR 5,500 mark that is 11.7% rise over last fiscal, which
further increases the need for banking. On the industrial front, the Indian corporates
are expanding at an ever-increasing rate with mergers and acquisitions happening all
across the globe. Corporate customers are in dire need of more financial institutions to
support their high demand for national and international expansion. Finance Ministry
with support from RBI has also started testing wholesale debt market and thus, the
need for more banks for better access to capital is inevitable. Other factors such as
mobile banking, Small and Medium Enterprise (SME) banking are also picking
pace in the country.
The greatest opportunity that exists is the vast mass of financially excluded people
who are waiting to be touched by the formal financial system. The potential benefits
to the banking system and to the economy from financially including this segment will
be enough to galvanize the economy and restore it back to the high growth trajectory.
Challenges:
India, the second largest populated country, has total 77 banks including 27 public
sector banks, 20 private banks and 30 foreign banks. However, this huge universe has
not clinched any significant global footprint.
Countrys largest lender - the State Bank of India (SBI) ranks 60th globally in 2012
in terms of Tier I capital (equity + reserves). The second largest bank (in terms of loan
book) ICICI Bank s position is way below at 110. Among top 200, only four more
banks including HDFC Bank, Bank of Baroda, Canara Bank and Punjab National
Bank managed to find their ranks. This leads to a very interesting question. Do we
need more banks or bigger banks?
The other point is linked to the condition set for new banks to open a minimum
number of branches in rural areas. The problem here is that banks will be more than
happy to tap new markets but such markets should at least be accessible.
Banks can lend and accept deposits but there is a need to have sufficient infrastructure
for banks to set up rural branches and for rural population to reach the banks.
Agencies such as National Bank for Agriculture and Rural Development
(NABARD) need to be strengthened and restructured to meet not only demands of
the rural population but also financial institutions for the ultimate goal of the
government of financial inclusion in the country.
Retail Banking is already flooded. There is an extremely high level of supply when
compared to the demand. Earlier the household savings went into banks and the banks
then lent out money to corporates. Now banks need to sell banking. It will be
interesting to note how new banks create market for themselves and how existing
banks offer new services to differentiate themselves.
Closing Note:
RBI is neither deregulating any of the functions or objectives of banking in the
country nor introducing a modified banking methodology. RBI is moreover giving
opportunities to cash rich corporates to reinvest their funds in India only instead of
parking them outside. Adding more banks in the country might not bring an
revolutionary change in the skewed financial sector of the nation but if new banks
keep profit maximization as their secondary objective then they will be on the right
track of socially and economically uplifting the ignored population of the country
which is the prime motive of RBI as well as the on going 12
th
Five Year Plan. One
thing that is very sure is that RBI will not easily allow banks to exploit the markets to
swell their balance sheets. The way it has set norms and guidelines for the new banks
and witnessing RBIs perfect hold over banks of the nation, from a wide perspective
the new banks should be well in interest of the investors as well as borrowers. Though
Indian banks had exposure to economic turmoil but none of them went under cash
crunch possible just because of regulatory credit requirements monitored and
regulated by RBI.
Raghuram Rajan right after his appointment as RBIs Governor has indicated that RBI
will issue the new licenses sometime around January 2014. With Basel III norms
being introduced by RBI in India coupled with its zestfulness to issue new banking
licenses, RBI is on a boost mode to help the economy grow motivated by better
investment opportunities and sufficient availability of credit in the system. It will be
interesting to observe which billionaire manages to get hold of the sought after
banking license and whose automated teller machine sets up few meters away from
your home. We believe that IDFC and LIC Housing Finance are the top contenders for
the banking licenses taking in view the relevant experience both these firms have and
where one firm is hopeful to benefit the much needed infrastructure development and
the other being part of countrys largest custodian of equity investments.
The Reserve Bank of India (RBI) has maintained status quo on the interest rates and
left the policy rates unchanged in its bimonthly monetary policy review on Tuesday,
as widely anticipated. Given that this was already factored into the market
expectations, the benchmark indices were flat in early trades.
As a result, the policy repo rate under the liquidity adjustment facility (LAF) remains
unchanged at 8 per cent and the cash reserve ratio (CRR) of scheduled banks also
stands unchanged at 4 per cent of net demand and time liability (NDTL).
Consequently, the reverse repo rate under the LAF will remain unchanged at 7 per
cent, and the marginal standing facility (MSF) rate and the bank rate at 9 per cent.
At the current juncture, it is appropriate to hold the policy rate, while allowing the
rate increases undertaken during September 2013-January 2014 to work their way
through the economy. Furthermore, if inflation continues along the intended glide
path, further policy tightening in the near term is not anticipated at this juncture,
as per the policy statement.
The RBI noted that sharper-than-expected disinflation in vegetable prices since
December 2013 has enabled a sizable fall in headline inflation. But vegetable prices
have entered their seasonal trough and further softening is unlikely. It also observed
that consumer inflation excluding food and fuel has remained flat.
It added that there are risks to the central forecast of 8 per cent consumer inflation
by January 2015 stemming from a less-than-normal monsoon due to possible El
Nino effects; uncertainty on the setting of minimum support prices for agricultural
commodities and the setting of other administered prices, especially of fuel, fertiliser
and electricity; the outlook for fiscal policy; geo-political developments and their
impact on international commodity prices.
RBI pointed out that there will also be a downward statistical pull on consumer
inflation exerted by base effects of high inflation during June-November 2013. It is
critical to look through any transient effects, including these base effects, which
could temporarily soften headline inflation during 2014, it said.
RBI said its policy stance will be firmly focused on keeping the economy on a
disinflationary glide path that is intended to hit 8 per cent consumer inflation by
January 2015 and 6 per cent by January 2016.
Contingent upon the desired inflation outcome, real GDP growth is projected to pick
up from a little below 5 per cent in 2013-14 to a range of 5 to 6 per cent in 2014-15
albeit with downside risks to the central estimate of 5.5 per cent, according to RBI.
It cautioned that the lead indicators do not point to any sustained revival in industry
and services as yet, and the outlook for the agricultural sector is contingent upon
the timely arrival and spread of the monsoon.
The central bank said real GDP growth continued to be modest in Q3 of 2013-14,
with some strengthening of activity in services such as trade, hotels, transport and
communication, and financing, real estate and business services.
Despite some positive movement in more recent data, industrial activity continues
to be a drag on the economy, with retrenchment in both consumption and
investment demand reflected in the contraction of output of consumer durables as
well as capital goods. In the quarters ahead, the boost provided by robust
agricultural production in 2013 may wane, it added.
In the meantime, the central bank decided to increase the liquidity provided under
7-day and 14-day term repos from 0.5 per cent of NDTL of the banking system to
0.75 per cent, and decrease the liquidity provided under overnight repos under the
LAF from 0.5 per cent of bank-wise NDTL to 0.25 per cent with immediate effect.
This is in line with Urjit Patel Committees recommendation to de-emphasise
overnight guaranteed-access windows for liquidity management and progressively
conduct liquidity management through term repos.
The second bimonthly monetary policy statement is scheduled on June 3, 2014. This
would also be the first monetary policy review after the general elections, whose
results will be declared on May 16.
Meanwhile, the central bank said that it will consult with the Election Commission
before announcing the names of the firms who have got in-principle approval for
receiving new bank licences.
Mumbai, April 1 (IANS) The Reserve Bank of India (RBI), as expected, left key interest rates
unchanged in its first bi-monthly monetary policy review Tuesday and said near-term
tightening is not expected if inflation continues to ease.
The repo rate, or the interest that banks pay when they borrow money from the RBI to meet
their short-term fund requirements, has been left unchanged at 8 percent.
The reverse repo rate, or the interest that the RBI pays to commercial banks when they park
their surplus short-term funds with the central bank, has been adjusted to 7 percent.
The Cash Reserve Ratio (CRR) is left unchanged at 4 percent. The marginal standing facility
rate and the Bank Rate is also kept unchanged at 9 percent.
The status quo in key policy rates mean the equated monthly installments (EMIs) on home,
auto and other loans would remain unchanged as these rates determine lending and borrowing
rates of the commercial banks.
In its previous policy statement announced Jan 28, the central bank had hiked short-term
lending and borrowing rates by 0.25 percent.
The central bank's action is on the expected lines as most analysts predicted a status quo
considering the macro-economic data and election.
"The only thing that is surprising in the monetary policy today is lack of surprises," Governor
Raghuram Rajan said while announcing the policy statement.
Rajan said the central bank's policy is firmly focused on curbing inflation.
On the back of softening in food and fuel price rise, wholesale price-based inflation eased to
4.68 percent in February, while retail inflation, based on the Consumer Price Index (CPI)
declined to a 25-month low of 8.10 percent.
"The Reserve Bank's policy stance will be firmly focussed on keeping the economy on a
disinflationary glide path that is intended to hit 8 percent CPI inflation by January 2015 and 6
percent by January 2016," the governor said.
"At the current juncture, it is appropriate to hold the policy rate, while allowing the rate
increases undertaken during September 2013-January 2014 to work their way through the
economy, he said.
"Furthermore, if inflation continues along the intended glide path, further policy tightening in
the near term is not anticipated at this juncture," Rajan added.
This is the first bi-monthly policy review of monetary policy. On the recommendations of a
panel headed by RBI Deputy Governor Urjit Patel, the central bank has now decided to shift
to a system of announcing policy statements once every two months, instead of 45 days that
was in practice for the past few years.
The next bi-monthly monetary policy statement will be announced June 3, 2014.
Meanwhile, industries pitched for rate cuts saying it is essential to uplift business sentiments.
"Industrial growth remains sluggish. The improvement in January IIP numbers is meagre and
there are no clear signs of growth bottoming out. Going ahead, it will be vital to strengthen
the sync between government actions and RBI policy," said Sidharth Birla, president,
Federation of Indian Chambers of Commerce and Industry (FICCI).
"FICCI feels tweaking policy rates downwards would help lift business sentiments," Birla
said.
Commenting on the policy, Chandrajit Banerjee, director general, Confederation of Indian
Industry (CII) said the RBI action is as per market expectations.
"However, at a time when growth impulses remain weak and WPI inflation has been on the
declining trajectory for the last nine months, the RBI should have taken this opportunity to
announce a cut in policy rates which would stimulate demand and kick start the investment
cycle," Banerjee said.
Union Finance Minister P. Chidambaram on Thursday inaugurated the countrys first post
office savings bank ATM at the Head Post Office in Thyagaraya Nagar here. The ATM was
part of an Information Technology (IT) modernisation project of the Department of Posts.
Mr. Chidambaram said a total of Rs. 4909 crore had been allotted for the modernisation in the
interim budget. The launching of the ATM was a step towards making the department a
completely technology oriented one, he said adding that the Core Banking Solutions (CBS)
scheme would benefit as much as 1,55,000 post offices.
Mr. Chidambaram said the ATM would run on a trial basis for six months. Afterwards, it
would become an interoperable where cards of other banks could be used.
Commenting on the future of post offices in the IT era where sending letters and post cards
had become a rarity, Mr. Chidambaram said the department was inventing new strategies to
keep itself on the growth trajectory. For parcel services, people still preferred the post office,
he observed.
Secretary of Department of Posts Padmini Gopinath said about 2800 such ATMs would be
installed by end of 2015. Sixty-two post offices covering 64 lakh accounts had already
migrated to CBS. Over 26,840 post offices will adopt CBS by 2016. All account holders will
be provided with an ATM card, Ms. Padimini said. She said the department was also toying
with the idea of starting e-commerce services in rural areas to improve its earnings.
The humble post office is all set to undergo a radical change with a proposal to convert over
1.5 lakh post offices across the nation into full fledged banks on the anvil.
Telecom Minister Kapil Sibal wants to reach out to the masses in the rural areas with modern
banking facilities through the post offices. We want to commercialise the department. We
will seek a licence from the RBI to convert all our post offices into banks, Mr. Sibal told
PTI.
The lack of modern banking facilities in rural areas and dependence of villagers on informal
sector for their credit requirements has prompted the government to work on financial
inclusion by way of setting up postal banks.
The State Bank of India cant build branches all over India, but there are post offices across
India. The branches are already there, so infrastructure expenditure is not required. So you
can actually give banking facilities at relatively lower costs, which would be extremely
beneficial to people, he said.
The post offices currently offer financial services like savings bank, postal life insurance,
pension payments and money transfer services. Its total corpus stood at Rs. 5,82,832.9 crore
as on March 31, 2011.
DoPs revenues grew 11 per cent to Rs. 6,954.09 crore in 2010-2011 from Rs. 6,266.70 crore
in the previous fiscal.
However, negative growth rate in some circles has pushed the Departments deficit to Rs.
6,625 crore in FY11, almost equal to the annual revenue of the Department.
Keywords: postal service, rural banking
The Reserve Bank of India has asked banks not to levy penalty on non-maintenance of minimum
balance in ordinary savings bank accounts and instead limit the services.

"Instead of levying penal charges for non-maintenance of minimum balance in ordinary savings bank
accounts, banks should limit services available on such accounts to those available to Basic Savings
Bank Deposit Accounts and restore the services when the balances improve to the minimum
required level," the RBI said in its first bi-monthly monetary policy statement.

Aditya Puri, MD & CEO of HDFC Bank, said Indian Banks' Association will share its feedback on RBI's
suggestions on savings account. "If the penalty is removed, the customers would bear a higher cost
as banks could be forced to charge services like ATM transactions, cheque books etc." Banks bear a
cost for maintaining a savings account, he added.

The RBI also directed banks not to levy penal charges for non-maintenance of minimum balances in
any inoperative account.

To safeguard customer interest in electronic banking transaction, banks were also asked by the RBI
to "limit the liability of customers in electronic banking transactions in cases where banks are not
able to prove customer negligence."

The Reserve Bank of India (RBI) today held interest rate steady at 8 per cent, in line with
expectations. Since taking office in September, Governor Raghuram Rajan has raised the repo rate
three times by a total of 75 basis points or 0.75 per cent.

The pause in interest rate hikes comes at a time when retail inflation has eased to a 25-month low,
while wholesale inflation has eased to a nine-month low.
Take a look at 10 best banks in India (banks with balance sheet of more than Rs 100,000 crore)

Image: HDFC BankAxis BankICICI Bank Bank of Baroda Bank of Maharashtra
1. New list -State Bank of India (SBI)
2. HDFC Bank
3. Bank of Baroda (BoB)
4. ICICI Bank
5. Punjab National Bank (PNB)
6. Axis Bank
7. Citi Bank
8. IDBI Bank
9. Bank of India (BOI)
10. Yes Bank
In world on basis of NII
5-jp morgan 4-citigroup 3-Agricultural Bank of China, China 2-China Construction
Bank, China 1- Industrial and Commercial Bank of China, China