RBI Green Signal To New Banks

Billionaires Vie to Open Banks as India Eases Rules 

After Decade

By Anto Antony & Bhuma Shrivastava - Feb 23, 2013 12:01 AM GMT+0530

Indian billionaires including Kumar Mangalam Birla are vying to set up banks in the world’s second- most populated nation after rules were eased to allow companies into the business and tap rural savings.

The Reserve Bank of India sought applications from companies with a 10-year track record and “sound credentials and integrity” to apply for licenses by July 1, according to a statement yesterday. Foreign ownership in the banks, which should have an equity capital of 5 billion rupees ($92 million), will be capped at 49 percent, according to the statement. Companies will have to set up 25 percent of their branches in villages and small towns.

New banks will help Prime Minister Manmohan Singh, who resumed opening up the $1.8 trillion economy in September, to tap savings in rural areas and revive growth from the slowest pace in a decade. Only 35 percent of India’s adult population has accounts with lenders and other financial institutions, according to the World Bank. The global average is 50 percent.

“The only purpose of the banking system is to increase the flow of money into the system,” Shachindra Nath, group chief executive officer at Religare Enterprises Ltd., said in an interview to Bloomberg TV India. “It’s genuine for the government and RBI to expect that newcomers bring that in.”

Religare, controlled by billionaire brothers Malvinder and Shivinder Singh, said it will seek the permit. Birla’s Aditya Birla Group is “eligible and will be applying” for the licenses, said Ajay Srinivasan, chief executive of the group’s financial services business. State-run companies will also be allowed to set up banks, according to the rules.

‘New Frontier’

“With the economy growing, rural India is emerging as the new frontier,” Ajit Mittal, a director at Indiabulls Group, said in a telephone interview. “Setting up branches there will be a good proposition for groups with requisite skill sets.”

Billionaire Anil Ambani’s Reliance Capital Ltd. (RCAPT) plans to apply for the permits, Chief Executive Officer Sam Ghosh said. Mahindra & Mahindra Financial Services Ltd. (MMFS), a unit of India’s largest tractor maker, is also keen to set up a bank, said Managing Director Ramesh Iyer.

Still, the licenses are unlikely to be issued until late 2014 or early 2015, said A.S.V. Krishnan, a Mumbai-based analyst at Ambit Capital Pvt.

India has 26 state-run banks, accounting for 76 percent of outstanding loans as of March 31,according to the central bank. The country’s 20 private lenders, led by ICICI Bank Ltd. (ICICIBC), held 19 percent of the loan market, while 40 foreign banks accounted for the rest.

Loan Growth

Banks operating in India collectively have 49.6 trillion rupees in outstanding loans as of Oct. 31, data compiled by the RBI shows. In an Oct. 30 statement, the Reserve Bank projected loan growth of 16 percent and deposit growth of 15 percent for the financial year ending March 31.

Bank loans, excluding advances made to state agencies for food procurement, expanded 16 percent in the year to Jan. 25, according to the RBI.

India’s economy will expand 5 percent in the year ending March 31, the least in a decade, government data shows. Singh in September eased rules for foreign direct investment in retail and airlines. He also raised fuel prices to reduce the government’s subsidy burden.

The RBI established guidelines that would open up the nation’s banking system to more private-sector firms in 1993 amid reforms that included liberalizing interest rates and setting standards for measuring non-performing loans. Based on those guidelines, the central bank granted licenses to 10 lenders, including ICICI, HDFC Bank Ltd. (HDFCB) and IndusInd Bank Ltd. (IIB)

Revised Rules

It revised those rules in 2001 and gave permits to Kotak Mahindra Bank Ltd. (KMB) and Yes Bank Ltd. over the following three years. In August 2010, the RBI said it would issue new guidelines for licensing more banks and began seeking feedback from existing lenders and industry groups.

“The Indian banking industry can do with a little bit more competition,” Uday Kotak, managing director of Kotak Mahindra Bank, said in an interview last month. Regulators need to ensure that “some of the issues faced in other sectors, which have led to a perception of cronyism, do not get repeated when banking licenses are issued.”

Firms will have to set up a wholly owned, non-operative financial holding company and undergo a so-called fit and proper test to win permits. The holding company will own 40 percent of the bank, which will have to be reduced to 15 percent in 12 years, according to the statement. The lender will have to sell shares within three years of starting business.

‘Only Differentiator’

The holding company will not be allowed to lend to firms owned by the founder. The rules also don’t allow the company to invest in any financial firms owned by the holding company.

New banks will need to maintain a 13 percent capital adequacy ratio for three years, compared with the 10 percent mandated by the regulator when it set guidelines for new lenders in 2001.

“In India, there isn’t a lot of difference in the strategy and business model of banks because these are as per the guidelines of the regulator,” Shinjini Kumar, a director at PricewaterhouseCoopers, said in an interview to Bloomberg TV India. “The only differentiator is the corporate governance and credibility of the entity.”

http://www.bloomberg.com/news/2013-02-22/india-allows-companies-to-set-up-banks-for-first-time-in-decade.html

Pak-India banking channel to be established soon: NBP president

KARACHI: The banking channel would soon be established between India and Pakistan after opening a branch of National Bank of Pakistan (NBP) in Delhi or Mumbai, this was stated by the NBP President Dr Asif Brohi.

Talking to the media at a dinner hosted by Pakistan Textile City Chairman Dr Mirza Ikhtiar Baig in his honour on Friday, Dr Brohi said that NBP has already contacted Reserve Bank of India to seek permission for establishing the NBP branch in India and a formal approval is awaited. He said that once the banking channel is established between the two neighbouring countries the bilateral trade would flourish. He said that after the opening of NBP branch in Dushanbe (Tajikistan), the NBP is catering to the banking needs in entire Central Asia for Pakistani businessmen.

He said that NBP is planning to further enlarge its branch network abroad. Brohi said that despite the fact that non-performing loans (NPLs) are increasing, the level of NPLs in NBP has not been increased as compared to the last year. He said that NBP is following the policy of loans’ recovery from the debtors and is adamant to write off ay loan and does not entertain any influence in this regard.

He said that NBP has the honour of being the largest bank of the Pakistan and he has put the bank on to the track of making NBP the masses’ bank. He said that NBP has adopted a slogan to greet every customer with a smile. He said that NBP is the first ever bank which has introduced microfinance loans.

He hoped that under the leadership of Dr Brohi NBP would progress further. staff report

http://www.dailytimes.com.pk/default.asp?page=2013%5C02%5C23%5Cstory_23-2-2013_pg5_8

RBI opens doors to broking, real estate firms to set up banks

OUR BUREAU

MUMBAI/NEW DELHI, FEB 22:  

The Reserve Bank of India on Friday set the stage for entry of new banks in the private sector by unveiling the much-awaited final guidelines.

The central bank appears to have accommodated the Government’s viewpoint and reversed the stand it had taken in the draft guidelines of not allowing broking and real-estate companies in the banking space.

The RBI said entities in the private sector, public sector and non-banking finance companies (NBFCs) will be eligible to set up a bank. Eligible NBFCs could be permitted to promote a new bank or convert themselves into banks.

Eligible promoters will have to make an application to the RBI by July 1, 2013.

The riders

The RBI, however, has given itself some wiggle room to reject applications. It said the promoter’s business model and business culture should not be misaligned with the banking model.

Further, the promoter’s business should not put the bank and the banking system at risk on account of activities such as those which are speculative in nature or subject to high asset price volatility.

The RBI will also check the promoter’s past track record of sound credentials and integrity; financial soundness and successful track record of running their business for at least 10 years; and seek feedback from other regulators, enforcement and investigative agencies.

Among others, the players which are expected throw their hat in the ring to get banking licences are: L&T Finance Holdings, Tata Capital, Aditya Birla Financial Services, Reliance Capital, LIC Housing Finance, Mahindra & Mahindra Financial Services, Religare Enterprises, and Indiabulls.

According to Shinjini Kumar, Director, PwC, the RBI has thrown open the field wider by relaxing the entry barrier.

The guidelines come three years after the then Finance Minister Pranab Mukherjee announced that the RBI is considering giving some additional banking licences to private sector players.

The last time that the central bank gave banking licences was a decade ago when Kotak Mahindra Finance Ltd got converted into a commercial bank and YES Bank was floated.

Entities/groups which intend to float a bank will have to set it up through a wholly-owned non-operative financial holding company (NOFHC), which will be registered as a non-banking finance company.

The NOFHC and the bank cannot have any loan exposure to the promoter group.

Further, the bank cannot invest in the equity/debt capital instruments of any financial entities held by the NOFHC.

The initial minimum paid-up voting equity capital of the new bank, whose board should have a majority of independent director, has been set at Rs 500 crore (it was Rs 200 crore when Kotak Bank and YES Bank were set up).

The Holding Company will initially hold a minimum 40 per cent of the paid-up voting equity capital of the bank, which will be locked in for a period of five years and brought down to 15 per cent within 12 years.

The RBI said the aggregate foreign shareholding in the new bank cannot exceed 49 per cent for the first five years.

Our New Delhi Bureau writes:

The Finance Ministry is hopeful that RBI will issue new banking licences by the end of next fiscal (2013-14), a top official has said.

“There would be examination of applications (by RBI and a high-powered committee).

“I think with all going well, with all clearances, by end of the financial year (2013-14) we will see some success,” Rajiv Takru, Financial Services Secretary, told newspersons here.

He also said that RBI guidelines, issued today, seek to ensure that only responsible people enter the space (banking).

“It will be a level-playing field. Whoever is eligible will get (licence).

“I don’t think the RBI is going to play favourites…,” Takru said.

http://www.thehindubusinessline.com/industry-and-economy/banking/rbi-opens-doors-to-broking-real-estate-firms-to-set-up-banks/article4443075.ece?homepage=true

India Post to enter banking space

The Indian postal department plans to enter the banking business with RBI deciding to grant new bank licences to entities with credible track-record.

Sources said the Department of Posts, which a strong foot print in rural areas, has appointed Ernst and Young as consultant for proposed 'Post Bank'.

"Ernst and Young is expected to submit detailed project report by April 2013, after which all necessary measures will

taken up to apply for banking licence,"a source at Ministry of Communications and Information Technology told PTI.

Sources added that Department of Post (DoP) may need Cabinet approval for setting Post Bank of India.

The Reserve Bank of India today issued the much-awaited guidelines for new banking licences. Among other terms, new

banks should open at least 25 per cent of branches in unbanked rural centres.

Of the 1.55 lakh post offices, around 24,000 district offices may be ready to offer banking services in next two years. Post offices are being enabled by core banking solution's connecting nationwide branches as part of an transformative IT project.

DoP is in process of setting up 1,000 ATMs.

The country has around 90,000 bank branches at present.

"Post Bank shall not only take care of the banking needs

of the rural poor but shall also converge with micro-insurance and micro-remittance services of the Department of Posts," the source said.

The head offices chosen for setting up ATMs covers all the states, with Andhra Pradesh leading the tally at 100 ATMs, followed by Tamil Nadu (92) and Uttar Pradesh (73).

As many as 61 ATMs would be set up

in Maharashtra, 60

ATMs in Karnataka, 51 ATMs each in Kerala and Rajasthan.

As per data shared with Parliament, there were over 26

crore operational small savings accounts in the post offices

as on March 31, 2012 having deposits worth Rs 1.9 lakh crore