Ibps l2 p2_evolution and bank license

Banking sectorEvolution

New Bank licensesBanks vs NBFC

Financial intermediaries• Barter => Double coincidence of wants• Money => circular flow of income• Financial intermediaries• Banking institutions• Non-banking institutions

Evolution (Pre independence)Firangi Banks•Bombay, Bengal, Madras Presidency=> Imperial Bank’21 =>SBI’55•British Army, Bureaucrats

Swadeshi Banks•Allahabad Bank, PNB, BoB, Canara•Focus: Foreign trade, Merchants•Local=>Shroff, Moneylenders.

Financial inclusion _____.(high / low)

Evolution (Pre independence)

Birth of RBI: why?•By 30s: 1200+ banks•Only company law•30s Great depression =>defaults•’34 RBI

Evolution (Post-independence)•SBI, ICICI, PNB, BoB.•Focus: merchant, industrial houses•Branch increase YES•Rural penetration NO•Help in FYP achievement NO•Nexus of industrial houses vs banks.

SHARE-HOLDERSSHARE-HOLDERS

Board of DirectorsManaging DirectorBoard of DirectorsManaging Director

CEOExecutives

Staff

CEOExecutives

Staff

PROFITPROFIT

DIVIDENDDIVIDEND

Nationalization of Banks

Financial inclusion:•RRB•Cooperative banks•NABARD

’55 1 Imperial bank (SBI)’69 14 50 cr. deposit’80 6 200 cr. Andra, Vijaya, Oriental

Mock Question• Skip• Attempt• Mark n review

Mock Question (2013)

Q. In context of independent India's economy, which one of the following was the earlier event to take place?A.Nationalization of insurance companyB.Nationalization of state bank of IndiaC.Enactment of Banking regulation ActD.Introduction of first Five year plan.

1. Skip 2. Attempt 3. Mark n Review

Mock Question (2009)Q. In context of independent India's economy, which one of the following was the earlier event to take place?A.Nationalization of insurance company: 55-56B.Nationalization of state bank of India: 55C.Enactment of Banking regulation Act: 49D.Introduction of first Five year plan: 51


Nationalization of Banks: problems

•Administered interest rate•political interference, loan mela=>NPA=>Civil Court.•Trade union, VRS•high reserve requirement: CRR 15%, SLR 40%=> •hard to get loans for business=> BoP crisis

Nationalization: high reserve ratio (PSL)Deposit Examples

Time Deposit FDRDDemand Deposit CASANet Demand and Time Liabilities (NDTL)

+100 cr.

ReserveCRR (min 3%) (-) 15 [no profit]SLR (min 25%) (-) 40 [some profit]Money left with bank =45PSL (40%) =45 x 0.4=18Left for normal borrowers =45-18=27 cr.

Nationalization: high reserve ratio (before LPG)

Deposit Examples

Time Deposit FDRD

Demand Deposit CASA

Net Demand and Time Liabilities (NDTL)

+100 cr.

Reserve

CRR (min 3%) (-) 15 [no profit]

SLR (min 25%) (-) 40 [some profit]

Money left with bank =45

PSL (40%) =45 x 0.4=18

Left for normal borrowers =45-18=27 cr.

Consequences?1.High cost of credit2.low expansion => jobs, taxations, export ($$)3.SLR not lowered4.Government borrowing5.Fiscal deficit, BoP

1991: Narsimhan Committee I (GoI)•Deregulation of interest rate=>BPLR=>Base Rate.•PSL @normal interest rates=> interest subvention•Debt recovery tribunal => 1993 =>SARFAESI 2002•Liberate Branch expansion policy•Reduce CRR, SLR=>(15,40)=>(4,23)•NBFC regulatory framework•1992=>SBI shares sold. =>GoI ~60%•Private / foreign banks=> 93 =>01 =>13

Working

1.ICICI2.HDFC3.UTI=>Axis (07)4.IDBI5.Indus6.DCB

1.Global Trust Bank (2001 scam, OBC)

2.Bank of Punjab=>Centurion bank

3.Centurian Bank=>(HDFC)4.Times Bank (HDFC)

Bank license 1st Round (10 licenses)Closed

Guideline: 1993Operation: 1994-95


1998: Narsimhan Committee II (GoI)1. VRS2. Legal reforms for loan recovery. =>SARFAESI 20023. Computerization, electronic fund transfer, legal framework 4. Payment and Settlement Act=>Retail (ECS, NEFT, Card) +

Wholesale (RTGS)5. Permit new private /foreign banks.

Bank Licenses 2nd Round

1.Kotak Mahindra2.Yes Bank



1998: Narsimhan Committee II (GoI)

Before After1. Banks2. NBFI3. DFI (Development

Financial institutions)- ICICI, IDBI, IFCI etc.

1.Banks2.NBFI

New Bank Licenses

Private banks 90s-2001

Timeline of Bank License (2013)• Feb-July 2013: applications sought• 26=> Ambani, Birla, Bajaj, Tata, Muthoot, Indian post •Minus (TATA, Videocon)• +1 KC Land and finance ltd.• =25 left.

• RBI High level advisory Committee, Bimal Jalan

• Mahila Bank Sep’13 (public sector BUT NOT Bimal)

Timeline: Bimal Jalan Committee• Feb 2014: Report submitted•March 2014: EC permission sought•April 2014: In principle approval to two applicants:

Bandhan Fin. Service and IDFC

Timeline: Bimal Jalan Committee“in principle” approval•Within 18 months•Rs.1000 crore net worth•25% branches in unbanked rural areas. •Then license under Banking Regulation Act, 1949 [Sec.22(1)]

Bandhan Fin.Services

• West Bengal• Micro Finance Co.• Boss: Chandra Shekhar Ghosh• Presently borrows from (23%.).

But Bank license- can get CASA.• 1100 Cr., 45% branches in rural

• Infrastructure Development and Financial Corporation • Mumbai, NBFC• Boss: Rajiv Lall• Power project, infra. Loans• 2100 cr., but rural presence low.

Two winnersIDFC

India post: Bimal Jalan: consider separately with Govt. consultationKumar Mangalam Birla: Coal blockAnil Ambani: 2G case

Bharatiya Mahila Bank (2013-14)

• Budget 2013; 1000 crore Rs. (100% State Owned)• Nothing new: 80s Pak, Tanzania

2009• MBN Rao Panel blue print (Canara)• Sept. License. Indira Gandhi’s

b’day (November 19)• HQ Delhi but launched from

Mumbai due to model code of conduct.

Bharatiya Mahila Bank (2013)

•Usha Anantha-Subramanian •BoD=all women.•Staff, deposit= male + female; BoB, PNB deputation.•Loan => predominantly to women.• loans up to Rs 1 crore without

collateral


kitchen loans, education loans, small home-based catering businesses.

PSB 4%Bharatiya Mahila Bank

4.5%; (1 lakh+) 5%

Kotak 6%Yes Bank 8%


• Skill development, financial literacy among women. • Core Banking Software by FIS

(American Co.)•Most banks use Finacle by Infosys.Target 1.25% branches in unbanked rural

areas.2.By March 2014: 25 branches3.By 2020: 700+ branches; 60k cr

business

Mock Question

Who Among the following is the chairman of Bharatiya Mahila Bank?A.Arundhati BhattacharyaB.Aruna BahugunaC.Shikha SharmaD.Usha Ananthasubramanium

2TF

Correct Statements about Bharatiya Mahila Bank?A.Bharatiya Mahila Bank is owned by a consortium of Government of India, NABARD and financial institutions.B.For the first three years, Bharatiya Mahila bank will be exempted from CRR and SLR requirements.C.Both A and BD.Neither A nor B


2TFCorrect Statements about Bharatiya Mahila Bank?A.Bharatiya Mahila Bank is owned by a consortium of Government of India, NABARD and financial institutions.B.For the first three years, Bharatiya Mahila bank will be exempted from CRR and SLR requirements.C.Both A and BD.Neither A nor B


2TF: observe what is being asked?

Incorrect Statements about Bharatiya Mahila Bank?A.Bharatiya Mahila Bank is owned by a consortium of Government of India, NABARD and financial institutions.B.For the first three years, Bharatiya Mahila bank will be exempted from CRR and SLR requirements.C.Both A and BD.Neither A nor B


Assertion reasoning(A) Bharatiya Mahila Bank will bring down the gender divide in financial inclusion. (R) Bharatiya Mahila bank will cater only female depositors and borrowers.OptionsA.Both the statements are individually true and Statement R is the correct explanation of Statement A.B.Both the statements are individually true but Statement R is not the correct explanation of Statement A.C.Statement A is true but Statement R is false.D.Statement A is false but Statement R is true.

Assertion reasoning


3TFCorrect Statements about Bharatiya Mahila Bank?1.They offers higher interest rates to female depositors over male depositors.2.The loan interest rates in Bharatiya Mahila bank, are decided by government of India. 3.Government has provided the initial capital in this bank from Nirbhaya Fund.Correct statementsA.Only 1 and 3B.Only 2 and 3C.only 1 and 2D.None of Above


3TF how to solve:


Interview1. Bharatiya Mahila Bank is a mere symbolic exercise

for feel good publicity. Do you agree? Yes/No and Why?

Bharatiya Mahila Bank (2013)-Anti points•SBI, PNB, BoB better suited, Govt. already majority shareholder.•25% rural branching: duplication of effort.•Higher Staff deputation• In the first phase focus on state capitals and UT.•4.5%/5% interest – pan India presence.•Overall a Tokenism/symbol but not substance.

Bank vs NBFC

• Narsimhan:=Hybrid (Comm. Bank + Coop. soc.)• The Sponsor bank: HRM,

Training• All India…x; few district….yesProblems1.Deposit- low; NABARD depend.2.NPA, urbanization, Competition

from SCB.3.Solution : Amalgation [2005]

Central 50%State Government 15%Sponsor Bank 35%

RRB-1975

Examples1.Dena Gujarat Gramin Bank2.Andhra Pradesh Grameena Vikas Bank3.Vidharbha Kshetriya Gramin Bank4.Paschim Banga Gramin Bank

• State registrar: Cooperative society.• ’66: Banking regulation Act.• No-profit, no-loss; • one member one vote.• All India? Guj, MH, Andhra, TN.• SLR, CRR yes.• PSL: no. (only Sch.coom.B)• Problem: politicization, • scandals: Madhupura: Ketan

Parekh, Visnagar/Kalupur: NPA.

Classification1.Urban (women)2.Rural

1. State Cooperative Banks2. District: Central Cooperative

banks3. Village: PACS.

Land Development Bank:State cooperative; Long term 20-30

years.

Cooperative Banking

AIFI=> EXIM Bank (82)

•Export-Import Bank of India• loan/credit/finance to exporters and

importers.•promotes cross border trade and

investment•Boss: Government of India (100%)

AIFI=>NABARD (82)•National Bank for Agriculture and Rural Development•Regulatory authority: Coop + RRB• Financing to State cooperative banks (SCB), RRB, MFI

etc.• farmers, villagers, cottage/handicraft, self-help group

(SHG) get loans at reasonable interest rate.•Rural infra. Development fund (RIFD).•Boss: Govt. (99.3%) + RBI (0.7%)

AIFI=>NHB(88)•National Housing Bank• apex institution for housing finance in India• Finance to banks and NBFCs for housing projects•Boss: RBI (100%)

AIFI=>SIDBI (90)• Small industries development bank of India•micro, small and medium enterprises (MSME).•finance to State Industrial Development Corporation

(SIDC), State finance corporations and banks• SIDBI's SEDF= small enterprises development fund.

(Foreign banks will <20 branches, PSL• SBI, LIC, IDBI other public sector banks, insurance

companies etc.

AIFI All India Financial institutions

Fifth FI = Investment Bank of India (IIBI), gone in 2012

DFI/DB; Gone after Narsimhan II 1998

Mock Question

Mock Question 2007 (UPSC)The national housing bank (NHB) was setup in India as a wholly owned subsidiary of which of the following bank?A.State bank of IndiaB.Reserve Bank of IndiaC.ICICID.LIC


Mock Question 2004Find Correct Statement(s)

A.NHB, the apex institution of housing finance in India, was setup as a wholly owned subsidiary of RBIB.Small industries development bank of India was established as a wholly owned subsidiary of the Industrial development bank of IndiaC.Both A and BD.Neither A nor B


Mock Question 2004


Next Questions

Mock QuestionWhich of the following grant(s) direct credit assistance to rural households? (2013)1.RRB2.NABARD3.Land development BanksChoice:A.Only 1 and 2B.Only 2C.Only 1 and 3D.1, 2 and 3.


Mock Question


NBFI: Type #2 PD• deal in "primary" market. directly buy G-sec via "auction".• Participate in OMO •Must get permission/license from RBI. •Morgan Stanley , Goldman Sachs, JP Morgan Chase, Standard

Chartered Bank, HSBC (Hongkong and Shanghai Banking Corpn. Ltd)• Even: SBI, BoB, Kotak Mahindra etc.

NBFI: Type #3 NBFC

NBFI: Type #3 NBFC= Not Banks

Bank "Non-Banking" Financial CompanyRBI gave them license under Banking regulation Act.

No. They take license under Company Act.

All supervised by RBI. NOT all. e.g. Insurance cos=IRDA; Merchant Banking Cos.=SEBI.

deposit from public1.time deposit (FDRD)2.demand deposits (CASA)

• They can accept Time deposit. (such NBFC are called Deposit taking NBFC)

• But They cannot accept demand deposits.

• Not part of Payment settlement, CTS.

NBFI: Type #3 NBFC= Not Banks

Bank "Non-Banking" Financial Company

4% CRR, 23% SLR

No.Only Deposit taking NBFC. 15% SLR.

40% PSL No.

Entry Capital requirement 500 Cr.

• 5 Cr. NBFC-MF• Others 2 cr.

NBFI: Type #3 NBFC= “Finance”


Bank lends this "deposited" money to someone.

They also lend money to someone. (="Finance" Companies)

But cannot invest in sharemarket CAN. E.g MF, PF, Insurance Cos.

Base Rate system Depends•Gold Loans= risk factor (15%, 25%)•Not all directly lend.•Shares: dividend. TCS 4, Coal India 29.•Bonds: 8/12/16%

NBFI: Type #3 NBFC=> NPA


SARFAESI, DRT Only Housing Finance Companies.

• Gold loan• Shares: last• Bonds: first.

NBFI→NBFC→ Source of fund?1. Borrow from banks2. Get finance from NABARD, National Housing

bank, SIDBI etc apex institutions3. External Commercial Borrowing (ECB).4. Some issue of bonds5. From clients: insurance, mutual funds.

Mock Question (2010)With reference to Non banking financial companies (NBFCs) in India,Consider following statements1.They cannot engage in the acquisition of securities issued by government.2.They cannot accept demand deposits like savings account.Find Correct statement(s)?A.Only 1B.Only 2C.Both 1 and 2D.Neither 1 nor 2


LAF (Repo)

• Minimum 5 cr• All clients eligible1.Central & State Government2.Banks (commercial, regional

rural banks, cooperative banks)3.Non-banking financial

institutions.++---LIC, UTI invest in Government

Securities

• 1 cr.• Only scheduled commercial

banks can bid.

What’s the difference?MSF

NBFI→NBFC→ClassificationType #1 Regulated by RBI

Asset Finance Company (AFC)

• loan to buy economically productive assets e.g. truck, tractor, pumpset, bulldozer, earthmover, etc.

• 2013: $200mn ECB, automatic window.• SREI Equipment Finance (WHITE LABEL ATM)

Infrastructure Finance Company

• Gives loan for infra. Projects.• Rural Electrification Company (REC)• Rajiv Gandhi Gramin Vidhyutikari (Power Ministry)• Rs.3,500 crore through tax-free bonds.

Infrastructure Debt Fund (IDF-NBFC)

Just like above, but they give very long term loans. Can even raise money from abroad.

Investment Cos.

• Invest in securities• Muthoot finance• L&T finance.

• Same. They too invest in securities• 90% of them invested in securities.• Investment long term (speculative,

aam junta…x)• Accept public funds, hence called

NBFC-D.• Cannot enter in insurance

business.• E.g. Tata Capital, Birla Capital• ECB borrowing permitted in Dec

2013.

NBFI→NBFC→RBI controlledCore Investment Cos

NBFI→NBFC→RBI controlled

Loan Company • Muthoot gold loan, Mannapuram Gold• LTV.

Factor Company • Factoring business• HSBC

Misc. Chit Fund • RBI + Registrar of Chit fund.

Residuary • --

RBI regulated

• AFC• Infra. Finance• IDF• Investment Co.• Core investment• Loan Company• Factor Company• Chit Fund, Misc.

• Insurance• MF, Stock Broker• Housing finance• Merchant Bank• VC• Nidhi• MFI

NBFI→NBFC→ClassificationOther than RBI

NBFI→NBFC→Classification (not regulated)Insurance companies

Take "premium" from you, invest It in shares/bonds.

LIC, Bajaj Allianz IRDA

Housing Finance Companies

They arrange money from variety of sources, lend it to home-loan seekers

DHFL, Muthoot Housing finance etc.

NHB

Stock Broker, MF

They help buying-selling of shares (of their clients).Earn commission/brokerage) in between.

1. Indiabulls2. Sherkhan3. Reliance

Money

SEBI

NBFI→NBFC→Classification (not regulated RBI)

Investment Banks

Merger, acquisition, Wealth Management; Merchant Banker: Underwriting

Kotak Mahindra, Citigroup,Bank of America

SEBI

Merchant Banking Companies

Underwriting, Corporate advising, They lend money to company via buying its "shares"

DSP Merrill Lynch, Morgan Stanley, Canara Bank, SBI capital (separate license)

SEBI

Venture Capital Fund

They finance start-up companies via equity.

IFCI, IDG SEBI

NBFI→NBFC→Classification (not regulated RBI)Nidhi One type of 'club'.

Borrow money from members, lend it among the members.mutual benefit funds

SOUTH MADRAS BENEFIT FUND ltd.

Department of Company affairs

Microfinance companies

Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI)

1. SKS (Andhra), 2. Cashpor (UP), 3. Ujjivan

(Karnataka)

Department of Company affairs

BANDHAN

NBFI→NBFC→MFI• Department of company affairs.• Entry capital 5 cr.• Individual person not given loan above Rs.50000 [Nachi-Rs.1

lakh]• focus on poor people, women clients, SHG.• Loan without collateral.• Borrower given flexibility to decide EMI and repayment• Actual interest rate: 26%• SKS (Andhra), Cashpor (UP), Ujjivan (Karnataka), Bandhan

(Bengal)

RBI regulated

1. AFC2. Infra. Finance3. IDF (Infra. Debt Fund)4. Investment Co.5. Core investment6. Loan Company7. Factor Company8. Chit Fund, Misc.

1. Insurance2. MF, Stock Broker3. Housing finance4. Merchant Bank5. Venture capital6. Nidhi Companies/ Mutual

benefit companies7. MFI (Microfinance)

NBFI→NBFC→ClassificationOther than RBI

Ibps l2 p2_evolution and bank license

Documents

Transcript of Ibps l2 p2_evolution and bank license