[Banking] RRB Amendment Bill, Small Banks-Payment Banks, Kotak-ING Vysya Merger, NBFC GuidelinesDevendra Vishwakarma
- BO1: RRB act
- BO2: Small banks and Payment Banks
- BO3: Kotak-ING Vyasa Merger
- Banking consolidation in past
- Kotak ING Vyasa Merger
- Bank merger/consolidation: good or bad?
- BO4: NBFC regulation guidelines
- BO6: SBI Share splitting
- Mock Questions for Banks Exams
- In this article, we’ll checkout a few current developments in Banking sector at “Organizational” level.
- In the next article, we’ll see developments at “operation / product” level e.g. Bharatiya Bill Payment system, SBI’s Shariya fund, E-mandate etc.
- Utility: Mainly for bank interviews and MCQs.
BO1: RRB act
- 1976: Regional Rural banks Act, based on Narsimhan Committee’s 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 RBI’s 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?
|RRB Act 1976||RRB Amendment Bill 2014|
|State government’s shareholding was fixed to 15%||States can buy more shares, to increase their shareholding 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.|
|Director’s tenure limit: 2 years||3 years|
|—||Person cannot remain director for more than 6 years. (Meaning one individual can be an RRB director for only two terms 3 + 3.)|
BO2: Small banks and Payment Banks
|1998||Narsimhan-II Committee recommends small banks in India.|
|2009||Raghuram Rajan Committee says the same.|
|2013-14||For greater financial inclusion, RBI’s Nachiket Mor Committee had recommend new types of banks such as payment banks and wholesale banks.|
|2014, Feb-March||Bimal Jalan Committee approved Bandhan Microfinance and IDFC for opening private commercial banks. Bimal too recommended RBI to permit ‘differentiated’ banks in India.|
|2014, Nov||Rajanbhai invites applications for Small banks and payment banks.|
Common Features of Small bank and Payment banks
- Deadline to apply for License: 16/01/2015. After that, an external screening Committee will decide the winners, probably in July 2015.
- Minimum capital requirement to apply for license: 100 crores. (For commercial bank license, it was Rs.500 crores)
- They’ll have to comply with the FDI norms like regular commercial banks i.e. 74% FDI only.
|Small banks||Payment banks|
|Can accept all types of deposits like a commercial bank (CASA, FDRD etc.)||
|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 cross-border remittances.|
|Who can apply?
||Who can apply?
- 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||TIMES Bank merged in HDFC|
|2001||Bank of Madura merged in ICICI|
|2002||Benares State bank (Public sector bank) merged with BoB (Bank of Baroda)|
|2003||Nedungadi bank (Kozhikode) merged with PNB (Punjab National Bank)|
|2004||Global Trust Bank merged with OBC (Oriental bank of Commerce) after media reports that Global trust bank had financed Ketan Parekh’s sharemarket scam.|
|2005||Bank of Punjab merged with Centurion bank|
|2008||Centurion bank itself merged with HDFC|
|2014||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|
|Got Banking license in 2003||
|4th Largest private bank||7th|
|Founder: Uday Kotak||
- 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.
BO4: NBFC regulation guidelines
- 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- they’re not allowed to get tax-benefits 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.
RBI’s new guidelines for NBFCs: