RBI grants in-principle nod to 10 small banks' applicants

This is good...With increased competition customer will be benefited...When RBI reduced rates not all Banks passed on the benefit by reducing interest rates..Small Banks can also lend..This will help the small farmers, micro and small industries, small businesses and the unorganized sector

Sep 17, 2015, 07.49 AM |

RBI grants in-principle nod to 10 small banks' applicants

A total of 72 players had applied for the small finance bank licence. 229 5 Google +5 38 Moneycontrol Bureau The Reserve Bank of India (RBI) today granted an in-principle nod to 10 applicants for small finance banks. According to a statement by the central bank, the in-principle approval granted will be valid for 18 months to enable the applicants to comply with the requirements under the Guidelines and fulfil other conditions as may be stipulated by the RBI. "On being satisfied that the applicants have complied with the requisite conditions laid down by it as part of in-principle approval, the RBI would consider granting them a licence for commencement of banking business under Section 22(1) of the Banking Regulation Act, 1949," adds the statement.

According to the in-principle nod given by the central bank, the applicants cannot undertake any banking business until a regular licence is issued.

A small finance bank, according to RBI, should have 75 percent of its adjusted net bank credit to be extended to priority sector and it should have atleast 25 branches in unbanked rural areas.

A total of 72 players had applied for the small finance bank licence and three different committees contributed to the final decision.

Here are the names of selected applicants: 1. Au Financiers (India) Limited, Jaipur 2. Capital Local Area Bank Limited, Jalandhar 3. Disha Microfin Private Limited, Ahmedabad 4. Equitas Holdings P Limited, Chennai 5. ESAF Microfinance and Investments Private Limited, Chennai 6. Janalakshmi Financial Services Private Limited, Bengaluru 7. RGVN (North East) Microfinance Limited, Guwahati 8. Suryoday Micro Finance Private Limited, Navi Mumbai 9. Ujjivan Financial Services Private Limited, Bengaluru 10.Utkarsh Micro Finance Private Limited, Varanasi.

Samit Ghosh, MD and CEO, Ujjivan Financial Services Private Limited, says the first obstacle for the company will be to convert its ownership structure from foreign to domestic. The micro-finance company has Rs 3300 crore assets under management (AUM) and caters to 24 states and union Territories.

BS Radhakrishnan of Janalakshmi FInancial Services says the RBI's intention behind granting approvals to both small banks and payment banks (in the recent past) is to create competition so that customers can get a variety of choices. "The noteworthy part, though, he adds is that payment banks can only accept deposits, unlike us who can lend too. So the ability of small banks to look at both sides of the balancesheet will help the company," he explains.

Guidelines to be met by small finance banks:

- 75 percent of Adjusted Net Bank Credit to be extended to priority sector

- 50 percent of loan portfolio to constitute loans & advances of upto Rs 25 lakh

- 25 branches must be in unbanked rural areas

- Maximum loan size & investment limit to single obligor restricted to 10 percent of capital funds

- Maximum loan size & investment limit to a group restricted to 10 percent of capital funds

- Require minimum paid up equity capital of Rs 100 crore.

- Promoter stake must be at 40 percent in first 5 years

- Promoter stake to be brought down to 30 percent within 10 yrs, 26 percent in 12 years

- Listing mandatory within 3 years of reaching Rs. 500 crore net worth

- Maximum foreign shareholding of 74 percent allowed

- CRR, SLR requirement as applicable to existing commercial banks from Day 1

http://www.moneycontrol.com/news/ec...pplicants_3112421.html?utm_source=ref_article

History repeats, I feel. Once upon a time, prior to the 1960's there were ever so many small banks in most parts of India and only the law relating to usurious lending controlled them. Then the authorities felt that such small banks were no good and started "consolidating" the banking system and in the end we had a little over one score big banks. Then the govt. felt that banks in private managements were no good and nationalized many of those large banks.

Now the newgen banks have come in as private sector banks and we have these "small banks". Will these help improve the fate of our rural poor? A million dollar question!

sangom said:

History repeats, I feel. Once upon a time, prior to the 1960's there were ever so many small banks in most parts of India and only the law relating to usurious lending controlled them. Then the authorities felt that such small banks were no good and started "consolidating" the banking system and in the end we had a little over one score big banks. Then the govt. felt that banks in private managements were no good and nationalized many of those large banks.

Now the newgen banks have come in as private sector banks and we have these "small banks". Will these help improve the fate of our rural poor? A million dollar question!

Click to expand...

The rural poor are mostly landless labour. Only when an equitable distribution of land takes place, their problems will end.

Those with land in the rural areas and remaining still poor are because of various other reasons including fertility of the land and their women and lack of enterprise.

These are problems to be addessed by the Government directly. Small or big banks can not do much in this. If there is enterprise and needs financial resources, banks can do something. It is always like this:"what do you bring to the table so that I can bring my financing resources to help you". What is lent has to be repaid unlike a freebie by Government. If money is not repaid the Bank itself will buckle and collapse. So what has been done by RBI is segregation of area of operation only. It is not an objective measure keeping in mind the customer. It is subjective in that now the financial experts will be free to finance large borrowers analysing their debt/service capacity, and identifying the asset liability gap to finance. They do not have to bother about the small borrowers where the financing is of their sales.

And as for the prediction that these will also be nationalized one day, I dont think that will happen. The times are different. Between the present "start up" shining stars and the Harshad Mehta much water has flown under the Cooum bridge. Harshad Mehta happened because RBI failed in managing its business processes and vigilance. Now technology has taken over most of the processes. If technology fails it will be force majeur. Small banks will be tightly controlled too with technology. There are no Bankers' receipts to be exchanged thesedays. LOL, The SGL accounts are credited and debited realtime. So the chance of failure of these new banks is remote unless there is a national calamity happening. So there will be no nationalization. The history, after all, may not repeat. LOL.