Wednesday, September 16, 2015

Backdoor Privatisation?

What are small banks
The small finance bank will primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.
What they can do
- Take small deposits and disburse loans
- Distribute mutual funds, insurance products and other simple third-party financial products
- Lend 75% of their total adjusted net bank credit to priority sector
- Maximum loan size would be 10% of capital funds to single borrower, 15% to a group
- Minimum 50% of loans should be up to 25 lakhs
What they cannot do
- Lend to big corporates and groups
- Cannot open branches with prior RBI approval for first five years
- Other financial activities of the promoter must not mingle with the bank
- It cannot set up subsidiaries to undertake non-banking financial services activities
- Cannot be a business correspondent of any bank
The guidelines they need to follow
- Promoter must contribute minimum 40% equity capital and should be brought down to 30% in 10 years.
- Minimum paid-up capital would be Rs 100 cr
- Capital adequacy ratio should be 15% of risk weighted assets, Tier-I should be 7.5%
- Foreign shareholding capped at 74% of paid capital, FPIs cannot hold more than 24%
- Priority sector lending requirement of 75% of total adjusted net bank credit
- 50% of loans must be up to Rs 25 lakh
Backdoor Privatisation?

The Reserve Bank of India (RBI) on Wednesday granted 10 entities in-principle licences to open so-called small finance banks—another move towards expanding access to financial services in rural and semi-urban areas.

Ujjivan Financial Services Pvt. Ltd, 
Janalakshmi Financial Services Pvt. Ltd and 
Equitas Holdings Ltd are among the 10 entities. 
The others are Au Financiers (India) Ltd, 
Capital Local Area Bank Ltd, 
Disha Microfin Pvt. Ltd, 
ESAF Microfinance and Investments Pvt. Ltd, 
RGVN (North East) Microfinance Ltd, 
Suryoday Micro Finance Pvt. Ltd, and 
Utkarsh Micro Finance Pvt. Ltd.

Small finance banks will offer basic banking services, accepting deposits and lending to unserved
and underserved sections including small business units, small and marginal farmers, micro and small industries, and entities in the unorganized sector, RBI said when it released guidelines for such banks in November.

The licensing of small finance banks follows 11 payment bank licences given out by RBI last month to provide basic savings, and deposit, payment and remittance services to people without access to the formal banking system. Payments banks will not be in the business of lending.

Such banks can eventually apply to RBI to transit into universal banks once they have established a satisfactory track record. Such a transition would be subject to due diligence by the banking regulator.

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Bank CEOs and directors will now be able to avail personal loans from their own bank below the base rate- the floor rate below which banks do not lend to their customers. The Reserve Bank of India on Wednesday said that has banks are permitted to offer loans below base rate to their whole time directors and CEOs. 

The CEO and director can now avail loans below base rate on loan for purchase of house, car, personal computer and furniture. They can also borrow for construction of house, festival advances and avail credit limits under credit card facility.

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