(www.ficci.

com, 2013)

http://www.ficci.com/SEDocument/20251/ficci-Survey-bank-June-2-2013.pdf http://rbi.org.in/scripts/bs_viewcontent.aspx?Id=2651 (www.rbi.org, 2013) http://www.business-standard.com/article/opinion/the-real-trouble-with-ourbanks-113081201234_1.html

(www.business-standard.com, 2013)

http://www.moneycontrol.com/news/business/what-isnew-banking-licenceto-attract-companies_912203.html (www.moneycontrol.com, 2013) http://www.business-standard.com/article/finance/in-principle-approvals-fornew-banks-by-q1-of-2014-chidambaram-113082000593_1.html

(www.business-standard.com, 2013)

http://www.business-standard.com/article/finance/insurers-non-operating-finarms-under-spotlight-113060400032_1.html
(www.business-standard.com, 2013)

http://www.business-standard.com/article/finance/aspirants-to-get-18-monthsfor-setting-up-banks-113060300882_1.html (www.business-standard.com, 2013)

http://www.business-standard.com/content/general_pdf/070413_06.pdf (www.business-standard.com, 2013)

http://www.business-standard.com/article/companies/l-t-finance-may-have-totweak-its-structure-for-banking-foray-113060401264_1.html
(www.business-standard.com, 2013)

http://www.business-standard.com/article/finance/bank-licence-clarification-who-gains-who-loses113060401023_1.html (www.business-standard.com, 2013) http://www.business-standard.com/article/companies/bank-licence-km-birla-quits-rbi-board113072300714_1.html (www.business-standard.com, 2013) http://www.business-standard.com/article/economy-policy/few-bank-licence-applicants-likely-tosucceed-fitch-113070400313_1.html (www.business-standard.com, 2013) http://www.business-standard.com/article/current-affairs/birla-s-rbi-status-questioned-by-cpi113071000706_1.html (www.business-standard.com, 2013) http://www.business-standard.com/article/markets/will-look-into-possible-conflict-of-interest-in-birlas-bank-licence-plea-rbi-113070400666_1.html (www.business-standard.com, 2013)

http://www.business-standard.com/article/finance/bullish-on-micro-lendingoptions-sks-opted-out-of-race-113071600861_1.html
(www.business-standard.com, 2013)

http://www.business-standard.com/article/specials/adding-spice-to-thebanking-licence-113070200940_1.html (www.business-standard.com, 2013) http://articles.economictimes.indiatimes.com/2013-0625/news/40186575_1_banking-licence-mahindra-finance-nbfcs

(www.economictimes.com, 2013)

http://profit.ndtv.com/news/banking-finance/article-risks-on-allowingbusiness-houses-into-banking-space-far-outweigh-benefits-imf-warns-316402 (www.profit.ndtv.com, 2013)

http://www.derivatives.capitaline.com/ViewTables.aspx?TSNo=57288 (www.derivatives.capitaline.com, 2013) http://vijaymenon2000.wordpress.com/?s=new+banking+license (www.vijaymenon2000.wordpress.com, 2013) http://www.indianexpress.com/news/bank-permit-surprise-entrants-amonghopefuls/1136454/ (www.indianexpress.com, 2013) http://www.naavi.org/wp/?p=1667
(www.naavi.org, 2013)

http://www.livemint.com/Opinion/za54bsB4xIk9En0XPCiKOJ/Why-India-Postshould-get-a-banking-licence.html (www.livemint.com, 2013) http://www.livemint.com/Industry/rpqFT2f63wTgzhy02eUDCI/New-banklicences--The-contenders.html# (www.livemint.com, 2013) http://www.firstpost.com/business/lt-fin-shriram-and-mm-lead-banking-licencerace-73781.html (www.firstpost.com, 2013) http://www.moneycontrol.com/news/economy/maximum-5-candidates-can-getbank-licence-clearance-ey_908678.html (www.moneycontrol.com, 2013) http://www.moneycontrol.com/news/business/how-will-rbi-select-entities-fornew-bank-licence_912740.html (www.moneycontrol.com, 2013)

Key highlights:
1. 96% of the respondents felt that India needs new banks 2. 88% of the respondents felt that RBI condition for an applicant applying for a banking license to set up at least 25% of its branches in unbanked rural centres with a population of less than 9,999 will play a significant role in expansion of banking services to mid cities and rural India and hence help in increasing financial inclusion in India 3. 75% of the respondents felt that new banks will help in consolidating the banking sector. 4. Irrespective of the fact that the new banks will help in consolidation of the banking sector, 58% of the total respondents felt that new banks should start afresh completely while only 42% of the respondents felt that new banks should acquire existing smaller banks and grow (Figure 4) 5. 69% of the respondents felt that corporate/ industrial houses should be given licenses while the remaining 31% felt that they should not be allowed to operate as banks 6. On being asked to provide any other parameters that the respondents felt were significant and should be therefore considered by RBI before issuing the license, the top three parameters that emerged are Sound financial position and financial track record of promoters and all the group companies (53%); Deep understanding and experience in financial services including fiduciary financial services (29%); Binding all compulsions such as opening up of branches in unbanked areas, PSL targets, Basel norms and limited exposure to sensitive sectors (29%) (Figure 7) 7. 59% of the respondents felt that the process of issuing bank licenses to new players should be an ongoing process (Figure 8)

8. 30% of the respondents felt that the time line for reviewing a new bank application should be 6-12 months (Figure 10) 9. 72% of the respondents felt that the recommendations of the advisory committee after its review of a new application should be considered seriously by RBI Board in granting license to an applicant rather than it being binding on the RBI Board (Figure 12) 10.64% of the respondents felt that other regulators should be a part of the Advisory Committee 11.When asked about who should be part of the Advisory Committee that will be formed by RBI, an overwhelming 69 per cent of the respondents wanted to have public policy experts and financial sector experts on the committee (Figure 13)

Following are the findings from the survey:

1. Need for New Banks RBIs decision to allow new players in the banking industry has been very well received by the respondents of this survey. 96% of the respondents felt that India needs new banks. It was felt that allowing new players will lead to an expansion of the banking sector and will therefore help in supporting the governments agenda of financial inclusion.

RBI has also stipulated that any applicant applying for a banking license should set up at least 25% of its branches in unbanked rural centers with a population of less than 9,999. 88% of the respondents felt that this move will play a significant role in expansion of banking services to mid cities and rural India and hence help in increasing financial inclusion in India. 2. Consolidation of Indian Banking Sector At present, there is not even a single Indian Bank which ranks amongst the top 20 banks of the world, based on market capitalization, as compared to China which has four of its banks in the list of top 20 global banks. As of 2013, the Industrial and Commercial Bank of China (ICBC), a state owned commercial bank in China, has a market capitalization of US$ 238 billion while the combined market capitalization of the three Indian banks put together is just US$ 90 billion, thereby indicating a stark difference in the scale of banking operations of the two countries. Not just the scale but the size of the Chinese banking industry sets it apart from its Indian counterparts. This is quite evident from the fact that in the year 2010, China had more than 250 commercial banks, 1, 96,000 business outlets and nearly 3 million employees. On the other hand, India had just 167 commercial banks, 87,768 business outlets and around 0.8 million employees. So while new banks are important to remain competitive, it is also evident that consolidation is also the need of the hour to match to the levels of international banks. About 75% of the respondents felt that new banks will help in consolidating the banking sector. However, irrespective of the fact that the new banks will help in consolidation of the banking sector, 58% of the total respondents felt that new banks should start afresh completely while only 42% of the respondents felt that new banks should acquire existing smaller banks and grow.

3. Allowing corporate/ industrial houses to enter the banking sector Industry has applauded RBI for adopting a balanced and a systematic approach in issuing the final guidelines. In contrast to the draft guidelines, in its final guidelines, RBI does not exclude any entity from applying for a banking license but at the same time ensures that the entity applying for a banking license meets the prudential norms and other eligibility requirements. The public debate on allowing of corporate entities to enter into the banking sector has been diverse. Most, who are not in favor of allowing corporate entities to set up banks, expressed apprehension over possible misuse of the licenses to benefit group companies of the corporate entity, conflict of interest and the difficulties that may arise in monitoring the flow of credit to these group companies. On the other hand, those in favor of allowing corporate entities into the banking sector have stated that well capitalized corporate companies can play a significant role in reaching out to unbanked population spread across India. Moreover, India has witnessed many success stories of corporate entities entering other financial sector businesses, such, as, insurance, mutual funds and even NBFCs. 69% of the respondents felt that corporate/ industrial houses should be given licenses while the remaining 31% felt that they should not be allowed to operate as banks. 4. New Bank Licenses Issuing Process (a) Broad Based Parameters The RBI Guidelines on New Bank Licenses are quite comprehensive in terms of the parameters for consideration while reviewing the application of prospective entrant. Some of the criteria such as diversified ownership, sound credentials and integrity and a successful track record of at least 10 years, besides having adequate capital, indicates the cautious approach that RBI would like to adopt before issuing the new bank license.

The survey also asked respondents to provide any other parameter that they thought were significant and should be therefore considered by RBI before issuing the license. (b) Number of Licenses Currently, RBI has not set any limit on the number of licenses that it will issue to new players. However, the final guidelines state that the licenses will be issued on a very selective basis. This is quite unlike the year 2001 when RBI had made it clear that the number of licenses to be issued over a three year period will be restricted to a maximum of two or three. 59% of the respondents felt that the process of issuing bank licenses to new players should be an ongoing process. It was interesting to note that none of the respondents felt that it would be suitable for RBI to set a cap on licenses for an indefinite period of time. (c) Timeline for Reviewing an Application 30% of the respondents felt that the time line for reviewing a new bank application should be 6-12 months. Respondents felt that this was ample time for RBI to review the applications closely before coming to its final verdict on whether a banking license should be granted to any particular company. (d) Reapplication in case of a rejection In the case of an application being rejected, 44% of the respondents felt that the applicant should be allowed to reapply within two years. 5. Role of Advisory Committee Once RBI receives all applications by July 1, 2013, it will undertake an in- depth examination of all applications. Thereafter, all the applications will be referred to a High level Advisory Committee, the composition of which will be decided by RBI shortly. 72% of the respondents felt that the recommendations of the advisory committee after its review of a new application should be considered seriously by RBI Board in granting license to an applicant rather than it being binding on the RBI Board.

Also, 64% of the respondents felt that other regulators should be a part of the Advisory Committee. When asked about who should be part of the Advisory Committee that will be formed by RBI, an overwhelming 69 per cent of the respondents wanted to have public policy experts and financial sector experts on the committee. Other suggestions were to have other regulators from the financial sector and prominent bankers (retired and working) as part of the Committee.

Which of the 26 applicants deserve Bank license? http://www.naavi.org/wp/?p=1658

APPLICANTS FACT-BOX:
Aditya Birla Nuvo part of the Aditya Birla conglomerate, which includes Idea Cellular and Hindalco Industries Bajaj Finance, part of the Bajaj Group, which includes motorbike maker Bajaj Auto. Bandhan Financial Services, a microfinance lender. Edelweiss Financial Services, a diversified financial services firm. IDFC, a finance company which lends to the infrastructure sector and has investment banking, private equity, research and mutual fund operations IFCI, a financial consultancy and advisory company

 Indiabulls Housing Finance Ltd, part of the Indiabulls group conglomerate. India Post, part of the ministry of communications and information technology. Indian post offices offer savings schemes and sell insurance and mutual funds. India Infoline, part of the IIFL group, which has interests in brokerage, wealth management, insurance and consumer loans. INMACS Management Services Ltd, which provides management consultancy, corporate finance, audit, tax and legal advisory services. Janalakshmi Financial Services, a microfinance company. JM Financial: Former Citigroup CEO Vikram Pandit would become nonexecutive chairman of JM's banking arm if it wins a license. LIC Housing Finance, a unit of Life Insurance Corp of India, the country's largest insurer. L&T Finance Holdings, part of India's largest engineering conglomerate, Larsen & Toubro. Magma Fincorp, a finance company that gives loans for vehicles, gold and small enterprises Muthoot Finance gives loans against gold Reliance Capital controlled by billionaire Anil Ambani. Japan's Sumitomo Mitsui Trust Bank and Nippon Life Insurance of Japan would each own stakes of between 4 and 5 percent in the proposed bank. Religare Enterprises, a financial services firm controlled by the Singh brothers who also control Fortis Healthcare. U.S.-based bank Customers Bancorp Inc will invest $51 million in the bank if the group gets a licence.

 Shriram Capital, part of the Shriram Group, which includes truck financier Shriram Transport. Smart Global Ventures: The Noida- based Smart Global Ventures is backed by Modi, who brought the ubiquitous Xerox machines and the tyres with technology from the Continental of Germany. The diversified business group has presence in telecom, entertainment, technology and healthcare. Spice Global already offers financial services through Wall Street Finance. SREI Infrastructure Finance, which mainly finances infrastructure projects. Suryamani Financing Co Ltd, a financial services provider. Tata Sons Ltd. Tata is the holding company for India's largest conglomerate. Tourism Finance Corp of India, which provides financial services for tourismrelated activities UAE Exchange India, a remittance and foreign exchange services firm. Value Industries, affiliated with Videocon Industries, which has interests ranging from white goods to energy.

Few Questions for Potential Entrants? While most of the large industrial houses and NBFCs have indicated interest in applying for licenses, we raise the following questions: 1) Why would industrial houses want to float a bank given just 15% stake, significant regulatory scrutiny, no possibility of borrowing from the bank, investment in management time and capital?; and

2) Why would NBFCs want to convert into a bank and bear the cost of SLR/CRR and priority sector loans? RBI will act on the side of caution and even those applicants that meet the eligibility criteria may not be given a license, per the RBI. In our view, NBFCs promoted by non-industrial houses and industrial houses with diversified ownership will likely have a better possibility of being issued licenses.

http://www.ficci.com/SEDocument/20251/ficci-Survey-bank-June-2-2013.pdf http://rbi.org.in/scripts/bs_viewcontent.aspx?Id=2651 http://www.business-standard.com/article/opinion/the-real-trouble-with-ourbanks-113081201234_1.html http://www.ficci.com/SEDocument/20251/ficci-Survey-bank-June-2-2013.pdf http://www.moneycontrol.com/news/business/what-isnew-banking-licenceto-attract-companies_912203.html http://www.business-standard.com/article/finance/in-principle-approvals-fornew-banks-by-q1-of-2014-chidambaram-113082000593_1.html http://www.business-standard.com/article/specials/rbi-to-set-up-panel-toscreen-new-bank-applications-113081100186_1.html http://www.business-standard.com/article/finance/insurers-non-operating-finarms-under-spotlight-113060400032_1.html http://www.business-standard.com/article/finance/aspirants-to-get-18-monthsfor-setting-up-banks-113060300882_1.html http://profit.ndtv.com/news/banking-finance/article-risks-on-allowing-businesshouses-into-banking-space-far-outweigh-benefits-imf-warns-316402 http://www.business-standard.com/content/general_pdf/070413_06.pdf

http://www.business-standard.com/article/companies/l-t-finance-may-have-totweak-its-structure-for-banking-foray-113060401264_1.html http://www.derivatives.capitaline.com/ViewTables.aspx?TSNo=57288 http://www.business-standard.com/article/finance/bullish-on-micro-lendingoptions-sks-opted-out-of-race-113071600861_1.html http://articles.economictimes.indiatimes.com/2013-0625/news/40186575_1_banking-licence-mahindra-finance-nbfcs http://vijaymenon2000.wordpress.com/?s=new+banking+license http://www.indianexpress.com/news/bank-permit-surprise-entrants-amonghopefuls/1136454/ http://www.business-standard.com/article/specials/adding-spice-to-thebanking-licence-113070200940_1.html http://www.business-standard.com/article/finance/bank-licence-clarificationwho-gains-who-loses-113060401023_1.html http://www.business-standard.com/article/companies/bank-licence-km-birlaquits-rbi-board-113072300714_1.html http://www.business-standard.com/article/current-affairs/birla-s-rbi-statusquestioned-by-cpi-113071000706_1.html http://www.business-standard.com/article/markets/will-look-into-possibleconflict-of-interest-in-birla-s-bank-licence-plea-rbi-113070400666_1.html http://www.naavi.org/wp/?p=1667 http://www.livemint.com/Opinion/za54bsB4xIk9En0XPCiKOJ/Why-India-Postshould-get-a-banking-licence.html http://www.ficci.com/SEDocument/20251/ficci-Survey-bank-June-2-2013.pdf

India Post: Biting off more than it can chew? http://blog.mylaw.net/india-post-biting-off-more-than-it-can-chew/

The finance world has been abuzz since the Reserve Bank of India (RBI) announced its intention to grant banking licences to a few more private sector entities. The July 1 deadline has passed and there are 26 contenders for these licences. While no one was surprised to see established private sector groups like Tata, Birla, and Reliance on the list, entities like Muthoot Finance (the gold loan company) and some Non-Banking Finance Companies like Edelweiss Financial are also part of it. But the one that interests me the most is India Post. India Post brings rural access to the table. At its current infrastructure, about 90% of its branches are in rural India. The RBI, with its focus on financial inclusion, has already made it compulsory for new lenders to have at least 25% of their branches in rural areas. So, you might think, who better than India Post to lead the financial inclusion brigade? The answer appears to bealmost everyone else. This is because: 1. New banks for private sector only: The RBIs intention is to expand the representation of the private sector in banking, and to thereby fuel competition in the market. The new licensing norms titled Guidelines for Licensing of New Banks in the Private Sector make that evident. So where does that leave India Post? To be a serious contender, either the department (a part of the Ministry of Communications and Information Technology) becomes a corporate entity, or the RBI will have to find a place for a government department in its new regulations. 2. Regulation of a government department: Let us assume that the RBI allows the latter option. How will the RBI enforce regulations on or penalize a government department?

3. Ability to run banking operations: Fundamentally, there are two functions that make an entity a bank accepting deposits and lending funds. In a way, India Post is already running certain schemes that explain why it has any banking ambitions at all. The Post Office Savings Schemes allow people across the country to create savings accounts that offer good rates of interest and, in some cases, tax rebates. It is in the second function however, that it runs into a major roadblock. Our postal department has no experience in lending. There are no rules, guidelines, or paperwork to tell the department how to go about lending the corpus of funds that they collect from the deposits. This is India Posts biggest challenge. You see, they have the infrastructure, but they dont have the people. You cannot convert your local postman into a bank branch manager. It would involve a colossal operational, not to mention a philosophical change, within the department for it to be equipped to handle banking operations. And experience tells us that change does not come to the Indian public sector easily.

POST BANK OF INDIA? In the laundry list of applicants for new bank licenses, 26 in all, there is a surprise candidate rubbing shoulders with the Tatas, the Birlas and the Ambanis the Department of Posts. By applying for a banking license, India Post has shown that it acknowledges the need for change. And with an extensive network that far surpasses other banks in the country, it is also poised to benefit the most with a license. The point is that India Post has realized that it has to find other sources of revenue. In fact, it diversified into distributing mutual fund products more than a decade ago. Last month it announced plans to set up mechanized warehouses and a tie-up with Air India to transport parcels for ecommerce portals.

The decision to foray into commercial banking now is only an extension of its presence in financial services through the post office savings bank which is used by millions across the country. Apart from offering savings schemes with attractive interest rates, post office savings bank accounts can be used normally like any other bank account. The name of the game in banking is an extensive branch network. And India Post is unbeatable in this with over 1.55 lakh post offices across the country, 90 per cent of them in rural areas. How many retail banks in the country can boast of such a network? The bank with the biggest network in India, SBI, has 14,816 branches; together with its associate banks the number will not exceed 20,000. Even if India Post were to convert just 10 per cent of its branches into banks, it will be larger than SBI. And again, India Post is present in every district of the country unlike SBI or any other public sector bank. So, if the objective of issuing new bank licenses is improving financial inclusion as the government claims, then India Post should really be a frontrunner for a license. Given that it is a government department, the RBI should really not have any problems with the financial soundness of India Post. People, especially in the rural areas, are already familiar with India Post; they may even be banking with it already. So winning credibility is not an issue unlike some of the other big names who are now jostling for a license. All that would remain then is getting the right people on board to run a bank, putting it at arms length from the government and getting it well-capitalized. And lo and behold, we can have those little red contraptions back on street corners; only that this time you can swipe your cards there for cash rather than drop a secret inland letter to your girlfriend!
http://www.thehindu.com/opinion/blogs/blog-laissez-faire/article4884760.ece

http://www.business-standard.com/article/specials/india-post-needs-to-become-a-corporate-forbanking-foray-113070200803_1.html challenges This will not be easy. For one thing, the Reserve Bank of India may not hand out licences to more than four or five of the applicants; and the post office's 25 rivals include the financial wings of heavyweight conglomerates like the Tatas and the Aditya Birla Group, corporate houses that have a demonstrated ability to get things done in India. Many of its other rivals also have demonstrated experience in the financial sector - and without the negatives associated with cross-ownership of companies. India Post, while it has long acted as an agent for small savers to lend to the government, has no real expertise in lending elsewhere. In addition, there are major procedural hassles to be overcome. After all, the Department of Posts is a government department, not a company, and definitely not in the private sector. It will somehow have to set up a holding company in order to get the licence. http://www.business-standard.com/article/opinion/india-post-bank-113070600591_1.html

WHY DO WE NEED NEW BANKS?

The real trouble with our banks: Their sky-high profits in an essentially commodity business reflects too little competition Looking at the profits Indian banks have been making, you could be pardoned for thinking that this is the most skilled, brand-driven, large-moats-around-its-business kind of enterprise.
INDIAN BANKS PROFI GLOBAL BANKS PROFI DECADE OLD PROFI TS TS COMPANIES TS HDFC Bank $1.8 bn HSBC $14 bn Godrej $180 mn ICICI Bank $1.8 bn Bank of America $4.5 bn Hindustan Unilever $850 mn Axis Bank $1.2 bn BNP Paribas $6 bn Nestle $240 mn Kotak Mahindra Bank $500 mn Banco Santander $2.2 bn Dabur $300 mn YES Bank $300 mn Credit Suisse $1.3 bn ITC $1.8 bn (We have used a dollar/rupee rate of $45 to erase the effect of the rupee's steep fall; in order to make our banks' numbers consistent with global banks')

Indian v/s global banks: Many of these banks have footprints that span the world. Contrast this with our Indian banks. They are 100 per cent single-country focused, that too, a very poor country with low paying capacity for banking services and

products. And even within India, they are still very urban-centric, and with none of them capable of being called truly pan-Indian operations. And yet, their profits are simply massive, even when compared to their global peers. Indian banks v/s old giant companies: All these companies have marquee, iconic brands, have been around for decades, have distribution reaching down to the smallest villages in India, have business models that are impossible for a new entrant to replicate in any meaningful way. And yet, their profit numbers are nothing when compared to our banks who have been around less than 20 years, and most, less than 10 years in any substantial way (Kotak, YES). Think about this: in just five to seven years' time YES Bank has built up profits of $300 million-plus, more than what a storied company like Nestle makes even after decades in India. Now, one could have understood if YES Bank was doing something very special or un-replicable by anybody else, that it had some crucial proprietary edge in the business that led it to such massive profits. But it has nothing of that sort. It is still plain banking, like every other private sector bank. Even if these banks were making their money from principal trading, these numbers may have been justifiable, because trading requires very special skills, and hence, there are no practical limits on how much money a bank can make in this activity. But to make this global level of profits for doing age-old borrowing + lending + some treasury operations seems completely unsustainable. The truth is that Indian banking suffers from too little competition at the quality end, leading to these profits. Thus, a slew of new bank licenses should be issued that will hopefully lead to the whittling down of these unjustified, sky-high profit numbers of the existing players, thereby making banking services more affordable for the masses.
http://www.business-standard.com/article/opinion/the-real-trouble-with-our-banks113081201234_1.html

RBI to set up panel to screen new bank applications Member of panel would be drawn from other financial regulators like Irda, Sebi, PFRDA

The Reserve Bank (RBI) will soon set up a high-level panel of eminent experts from the banking and financial sector to screen applications of 26 aspirants for new banking licenses. The High Level Advisory Committee (HLAC) will not have any members from the RBI but will comprise of eminent persons with experience in banking, financial sector and other relevant areas, sources said. It is expected that the member of this panel would be drawn from the other financial regulators like Irda, Sebi, and PFRDA. Besides, some top official from the government may also be invited to join the committee. In the 2001 round of guidelines for the new licenses, the then-HLAC members were C G Somiah former CAG, I G Patel, former RBI Governor and Dipankar Basu former head of State Bank of India. As RBI is continuing its scrutiny process, there will be change of guard at the central bank with Raghuram Rajan taking over as 23rd Governor on September 5. He will succeed the incumbent D Subbarao. After the screening applications by the RBI they will be referred to the high level panel for their scrutiny. The panel will have its own procedures for screening the applications. The Committee will reserve the right to call for more information as well as have discussions with any applicants and seek clarification on any issue as may be required by it. The Committee will submit its recommendations to RBI for consideration. However, the decision to issue an in-principle approval for setting up of a bank will be taken by RBI.
http://www.business-standard.com/article/specials/rbi-to-set-up-panel-to-screen-new-bankapplications-113081100186_1.html

We have committed Rs 1,300 cr initial capital for a bank: Rashesh Shah Interview with Chairman & CEO, Edelweiss Financial Services
A healthy track record and 17 years of experience in financial services would be the key strengths of Edelweiss Financial Services in setting up a bank, says chairman and chief executive officerRashesh Shah, in an interview with Manojit Saha. Edited excerpts: Why do you expect Edelweiss to secure a banking licence? There are four-five reasons why we are in a strong position. First, we are essentially a financial services company, with a track record of 17 years. During these years, we have added many businesses and provided intermediation between providers of capital and end-users. We have a good financial and compliance track record. So, we are fit and proper. We also have a good credit business on both wholesale and retail sides. In India, banking is a fairly broad-based business, not a narrow-based one. Banking is not only about technology; one also needs credit capability, underwriting skills, liquidity and treasury management, etc. We have both wholesale and retail credit businesses. We also have a treasury that manages Rs 15,000 crore of assets. So, we have all the building blocks required to become a bank. We are fairly well capitalised; our groups net worth is Rs 3,000 crore and we have committed Rs 1,300 crore as initial capital for the bank, against the regulatory requirement of Rs 500 crore.

So, capital-wise, too, we are fairly strong. We have a fairly wide reach in the countrywe are present in 250 cities through our housing finance and insurance business, with more than half a million customers.

ALSO READ: We certainly think we are eligible to set up a bank: Pawan Kumar Ruia

What is the plan to push the financial inclusion agenda, the theme for banking licences? As far as financial inclusion is concerned, I think there are very broad opportunities. It could be harnessing savings from rural savers and providing credit. One of our focus areas would be tapping urban migrant workers and providing financial services. We have also tied up with a couple of agencies to provide credit to rural customers. We see a lot of financial inclusion opportunities in the small and medium enterprise sector. What changes would Edelweiss have to make to comply with the Reserve bank of Indias final norms on corporate structure? Edelweiss Financial Services is a listed company, in which more than 60 per cent of the shares are owned by the publicpromoter holding is less than 40 per cent. According to the norms at least 51 per cent of the promoter group-controlled company has to be owned by the public. From a public shareholding point of view, we are listed; we have more than 51 per cent public shareholding. All we have to do is form a non-operative financial holding company and put the other companies under it. But in Edelweiss Financial services, we dont have to make any structural changes.

ALSO READ: Bank licences for companies will make sector competitive: RBI

What would be your key strength to become successful as bank? There are a few things that are key to the success of any banktechnology, risk management, customer service, etc. If one can do these few things right, the opportunity is huge. One has to be patient and take a 10-year view. I dont think any bank could be an overnight success. We are very confident we can build a strong institution over seven-10 years.. http://www.business-standard.com/article/finance/we-have-committed-rs-1300-cr-initial-capital-for-a-bank-rashesh-shah-113080600324_1.html

IMP: How will RBI select entities for new bank licence?
http://www.moneycontrol.com/news/business/how-will-rbi-select-entities-for-new-banklicence_912740.html

There are 26 candidates instead of asking you how they will be selected let me put the question on its head, on what grounds will you eliminate from this group of 26? If you look at the 26 entities that have applied, there are five basic buckets of categories that have applied. The first one is corporate. There are four corporates. Now corporate, there are two straight front-end corporate, but there are two others which are backed by corporate. Then there are NBFCs, 15 of them. Similarly, NBFCs, there are pure play NBFCs, then there are corporate-backed NBFCs and then there is government-backed NBFCs. So, you have three categories within NBFCs. Then you have broking firms of a certain kind government entities, like department of post , & others

So, you will have these five buckets within which the government has to take a view. So, ideally one would want a mix of these candidates. Now what exact things they will look at would depend on let us say the lineage, the ownership and the business model. But prima facie, things would be based on categories and not so much on individual.
Format: http://www.thehindubusinessline.com/opinion/columns/s-s-tarapore/welcome-to-bank-licensingderby/article4905456.ece

How will RBI select entities for new bank licence?

http://www.moneycontrol.com/news/business/how-will-rbi-select-entities-for-new-banklicence_912740.html

The most important category for me is the NBFC pure play like Shriram Capital. It is in a financial services sector and making an NBFC into a bank is a natural process of evolution, of a firm from one stage of existence to the other. So, government, Reserve Bank of India (RBI) should help these firms get into a higher form of organisation as it were. Second would be NBFCs with corporate banking like L&T Finance and Bajaj Finserv . So, again I would prefer that, but one level lower than, so if I were to have a caste system of thinking, the highest, the Brahminical level really is the NBFC pure play. The second level is NBFC backed by corporates. Third category would be the corporate. Given that Tata's and Birla's largely have a good name, I would say that Tata Bank and a Birla Bank should be given licence. India Post: I think the ability to manage, just because you are there in several thousand villages does not make you eligible to become a bank. You can manage liabilities but a bank has to manage assets. India Posts has no such qualification and if it is a government owned bank, it can be as vulnerable to pressure as any corporate bank.

Few bank licence applicants likely to succeed: Fitch

The strict conditions mean that profitability for new banks is likely to be limited until they secure a strong foothold Global rating agency Fitch today said the 26 applicants for new bank licences in India face tough requirements that are likely to lead to only a limited number receiving licences and developing into substantial banks. The central bank's objective to address financial inclusion places heavy demands on profitability and capital, and is likely to lengthen the time it takes for a successful applicant to establish a presence, Fitch said in a statement. The Reserve Bank of India (RBI) requires new banks to open one in four branches in rural areas and fulfil statutory reserve requirements - including placing 4% of deposits with the central bank and holding 23% in government bonds from day one. "We believe some entities will find the 40% priority-sector lending targets tough, even though they have around three years to meet them. Infrastructure finance companies with large existing loan portfolios that have little or no prior presence in the required sectors are likely to find the target most challenging," it said. The strict conditions mean that profitability for new banks is likely to be limited until they secure a strong foothold, it said, adding, the transformation of existing franchises will be slow, as most will have to start from scratch. Successful applicants are likely to be those with financial firepower and strong management to handle the transition and growth, it said. The number of applicants is less than the market's expectation, reflecting the high barriers to entry and regulatory restrictions that limit the competitive advantage of getting a bank licence - especially for established non-bank financial institutions (NBFI), it said. "We believe the established NBFI applicants may be better placed to switch to bank status. Nevertheless, the move away from their core competencies and well-managed operations into new businesses and unfamiliar risks with additional regulatory hurdles, may put put pressure on their capital," it added. http://www.business-standard.com/article/economy-policy/few-bank-licence-applicants-likely-tosucceed-fitch-113070400313_1.html

What is in new banking licence to attract companies?

http://www.moneycontrol.com/news/business/what-isnew-banking-licence-to-attractcompanies_912203.html

When may the license be given? I think the governor mentioned that it can happen in three months, but he is going in two months, so I dont think it is happening during his term. I think it will be announced only by the new governor, though the preliminary processes and the short-list will be ready by the time this governor goes.

Risks on allowing business houses into banking space far outweigh benefits, IMF warns
At a time when Indian corporates are keenly awaiting final guidelines for their entry into commercial banking, multilateral agency IMF has cautioned that risks related to allowing industrial houses to promote or own banks might "outweigh" the benefits. The International Monetary Fund (IMF) has said that it would be prudent to gain sufficient experience by implementing a comprehensive framework before deciding on the entry of "mixed groups and conglomerates" into commercial banking. "In the current context, the risks may outweigh the benefits... The legal, operational, and regulatory framework for consolidated supervision of both bankled groups and financial conglomerates is still missing some important elements," IMF said in its report -- India: Financial System Stability Assessment Update. The global agency said that the international experience has supported the prudent policy position of disallowing industrial houses from promoting and owning banks. According to the IMF, consolidated supervision frameworks and capabilities are weak even for bank led groups in the majority of jurisdictions assessed under the Financial Sector Assessment Programme (FSAP) and frameworks for the oversight of financial conglomerates continue to be a work in progress at the international level. "Even greater complexity is introduced in supervisory frameworks when a significant part of the group is engaged in non-financial activity, the risks of which

are not well captured by current supervisory frameworks. This may lead to concerns of 'under the radar' risk transfer; concentration of risk exposures; and contagion across the group," it said. In 2011, guidelines were issued for a new window of bank licences to foster competition, reduce costs, improve services and promote financial inclusion. IMF said that while several elements of the 2003 policy have been retained, entry requirements have been raised. "The key difference with the past policy is the express eligibility of large industrial houses to promote new banks; or to convert NBFCs they own into new banks," it noted.

What is in new banking licence to attract companies?

http://www.moneycontrol.com/news/business/what-isnew-banking-licence-to-attractcompanies_912203.html

The aspirants from the corporate sector have presence either in NBFC space or in financial markets or both. In the NBFC space, most are into lending to retail sector or commercial/corporate sector or mix of both. The brokerage houses that are in the race have extended reach to mid to top end of the economic pyramid through their products and services across asset classes spanning equity, currency and commodity markets. So, for most aspirants, building client base and business around them is not an issue while the major advantage will be from building low-cost liability franchise through products that would involve use of checking accounts viz., savings and current account. The issue for them will be transfer of intrinsic enterprise value from existing business to a new business at discount to cover costs relating to statutory requirements and priority sector lending. The benefit will accrue from access to relatively cheap sources of funds so as to retain the net financial intermediation margin.

While there is strong business case for this transition of existing business to a new banking entity, there is huge up-side in enterprise value through access to offbalance sheet/non-credit products/services that would build significant delta to the enterprise value through higher Return on Asset/Capital. There is established track record of how Banks who started in 2004 from the scratch have built market value of stocks by more than 50 times of initial capital in 10 years! It will be a winwin proposition for all stake holders, Government/RBI, customers and investors of the new Banks.

Thirteen changes in new bank licensing norms

In the past two decades, the Reserve Bank of India (RBI) has allowed formation of 12 new banks. The guidelines on entry of new banks were issued in January 1993 and were revised in 2001. On Friday, RBI released a new set of norms to allow creation of more banks. Here is a brief comparison of the guidelines issued in 1993, 2001 and 2013:

ELIGIBLE PROMOTERS:
1993: Individuals, corporate groups, financial institutions were eligible to set up banks. 2001: Individuals and financial institutions were allowed, but large industrial houses were not permitted to open banks. 2013: Everyone is welcome. Corporate groups, financial institutions and public sector entities can apply for a banking licence.

CORPORATE STRUCTURE:
1993: New banks were formed as public limited companies. 2001: The guidelines did not mention any change in the corporate structure. 2013: Promoters must set up banks only through wholly owned nonoperative financial holding companies.

PROMOTERS' CONTROL:
1993: The guidelines did not mention any cap on promoters' holdings in the bank. 2001: Promoters had to maintain 40% stake in the bank for at least five years. 2013: Promoters through a holding company must hold 40% share in the bank for five years. The stake must be cut to 20% in 10 years, 15% in 12 years.

FOREIGN SHAREHOLDING:
1993: The guidelines did not mention any cap on foreign shareholding in the bank. 2001:Non-residents were allowed to hold up to 40% in the bank. Foreign banks acting as copromoters were allowed 20% stake within the 40% ceiling. 2013: Aggregate non-resident shareholding will be capped at 49% for five years.

VOTING RIGHT:
1993: Individual shareholder's voting right was capped at 1 per cent of the total voting right. 2001: The guidelines did not mention any change in the rules pertaining to voting right. 2013: An individual belonging to the promoter group along with his relatives can hold up to 10% of the total voting equity shares of the holding company.

RING-FENCED STRUCTURE:
1993: New banks had to lay down its loan policy and make prudential norms covering related party transactions. 2001: New banks were not allowed to lend to any entity belonging to promoter group. 2013: Neither the holding company nor the bank is allowed to lend or invest in any entity belonging to the promoter group.

MINIMUM CAPITAL:
1993: Minimum paid-up capital for banks was fixed at Rs.100 crore. 2001: Initial minimum paid-up capital was fixed at Rs.200 crore. Banks were required to increase it to Rs.300 crore within three years. 2013: Minimum paid-up capital has been fixed at Rs.500 crore.

CAPITAL ADEQUACY RATIO:

1993: Banks had to maintain capital adequacy ratio of at least 8% from the very beginning. 2001: Banks had to maintain capital adequacy ratio of 10% on an ongoing basis. 2013: Banks must maintain capital adequacy ratio of 13% for at least three years.

BOARD COMPOSITION:
1993: Any director of another banking company was not allowed to be a director in the new bank.

2001: The guidelines did not mention any change. 2013: At least 50% of the directors of the holding company must be independent. The bank's board must have a majority of independent directors.

LISTING REQUIREMENTS:
1993: New banks had to get listed on stock exchanges but no deadline was given. 2001: The guidelines did not mention any change in listing requirements. 2013: New banks must get listed within three years.

NEW BUSINESSES:
1993: New banks were not allowed to set up a subsidiary or mutual fund for at least three years after its establishment. 2001: New banks were not allowed to set up a subsidiary or mutual fund for at least three years after commencing business. 2013: Holding company is not permitted to set up any new financial services entity for at least three years.

LOCATION PREFERENCES:
1993: Preference was given to those who proposed to have headquarters in centres that do not have headquarters of other banks. 2001: New banks were allowed to set up headquarters in any location in India but at least 25% of their branches had to be in rural and semi-urban centres. 2013: At least 25% of new banks' branches must be in unbanked rural centres.

PRIORITY SECTOR TARGET:

1993: Some relaxations were allowed in meeting priority sector targets in the first three years. 2001: New banks had to meet priority sector lending target of 40 per cent of net bank credit as applicable to other domestic banks. 2013: New banks have to meet priority sector targets and build priority sector lending portfolio after commencing operations.

Bank permit: Surprise entrants among hopefuls

http://www.indianexpress.com/news/bank-permit-surprise-entrants-amonghopefuls/1136454/ http://www.business-standard.com/article/specials/adding-spice-to-thebanking-licence-113070200940_1.html The applications of IFCI Ltd and Tourism Finance Corporation of India (TFCI), both controlled by the government, for a banking licence have raised eyebrows in the financial circles. The government holds 55.5 per cent stake in IFCI, a term lending institution. However, what has flummoxed corporate watchers is that TFCI in which IFCI holds over 42 per cent stake has also applied for the licence. Can both IFCI and TFCI get a licence? The two companies were not on the best of terms. IFCI and TFCI were earlier locked in a legal battle after the former proposed to appoint five additional directors on the TFCI board. While the list of contenders for a banking licence contains well-known corporates there are some surprise entries as well. Out of 26 applicants, at least four more aspirants stand out for their credentials to get a banking licence.

 Take for example, INMACS Management Services Limited based in Gurgaon, headed by leading chartered accountant Vinod Jain. The company's website claims it "has attained prominence as India's leading management consultant rendering highly specialized client-specific solutions for the widest spectrum of activities including: business setup services, business support services, business expansion services and financial & capital market services". Very little is known about the operations of Smart Global Ventures based in Noida. Suryamani Financing Company Limited based in Kolkata is another surprise applicant. The company is part of the Pawan Kumar Ruia group which controlled Dunlop, Falcon and Monotona. Both Smart Global and Suryamani are not listed on the BSE. Ruia Group vice-president for corporate communications, Dhrubajyoti Nandi, confirmed that the group had applied for a bank licence in the name of Suryamani Financing, but refused to elaborate on the groups banking plans. UAE Exchange India, another aspirant, is an RBI approved NBFC and claims it's the third largest Authorized Dealer Category II in terms of branch network, with a countrywide network of 328 direct branches and 44,000 agent locations present in 20 states. BR Shetty, chairman, UAE Exchange India, says, "We have been present in India since 1999 and we also have strong presence in all the countries, from where NRIs send money to their families in India." During the financial year 2012-13, the firm claims it handled a total business volume of Rs 12,000 crore.

Adding 'Spice' to the banking licence

S Mobility, which was formerly known as Spice Mobility, got the new company, Smart Global Ventures Pvt Ltd, registered with the Registrar of Companies on June 21, just 10 days before the deadline. On July 1, Noidabased Smart Global Ventures applied for a banking licence along with 25 other aspirants. Malhotra said, promoted by industrialist B K Modi, was hopeful of getting a

licence as it had full knowledge of smart banking. We fulfil all the fit-andproper criteria and have a clear track record. We already provide mobile banking solutions to all the customers of State Bank of India. However, according to a sector expert, the firm has no chance of getting banking licence as they are not eligible at all as they have no reputation in the market. Interestingly, in a board of directors meeting held last Friday, the company had decided to shut two of its handset manufacturing units, both at Baddi, Himachal Pradesh. Also, the board had decided to transfer the mobile handset business to Spice Retail Ltd, a wholly-owned subsidiary of the company.

Key Highlights 12.96% of the respondents felt that India needs new banks 13.88% of the respondents felt that RBI condition for an applicant applying for a banking license to set up at least 25% of its branches in unbanked rural centres with a population of less than 9,999 will play a significant role in expansion of banking services to mid cities and rural India and hence help in increasing financial inclusion in India 14.75% of the respondents felt that new banks will help in consolidating the banking sector. 15.Irrespective of the fact that the new banks will help in consolidation of the banking sector, 58% of the total respondents felt that new banks should start afresh completely while only 42% of the respondents felt that new banks should acquire existing smaller banks and grow (Figure 4) 16.69% of the respondents felt that corporate/ industrial houses should be given licenses while the remaining 31% felt that they should not be allowed to operate as banks 17.On being asked to provide any other parameters that the respondents felt were significant and should be therefore considered by RBI before issuing the license, the top three parameters that emerged are Sound financial position and financial track record of promoters and all the group companies (53%);

Deep understanding and experience in financial services including fiduciary financial services (29%); Binding all compulsions such as opening up of branches in unbanked areas, PSL targets, Basel norms and limited exposure to sensitive sectors (29%) (Figure 7) 18.59% of the respondents felt that the process of issuing bank licenses to new players should be an ongoing process (Figure 8) 19.30% of the respondents felt that the time line for reviewing a new bank application should be 6-12 months (Figure 10) 20.72% of the respondents felt that the recommendations of the advisory committee after its review of a new application should be considered seriously by RBI Board in granting license to an applicant rather than it being binding on the RBI Board (Figure 12) 21.64% of the respondents felt that other regulators should be a part of the Advisory Committee 22.When asked about who should be part of the Advisory Committee that will be formed by RBI, an overwhelming 69 per cent of the respondents wanted to have public policy experts and financial sector experts on the committee (Figure 13)

1. Need for New Banks RBIs decision to allow new players in the banking industry has been very well received by the respondents of this survey. 96% of the respondents felt that India needs new banks. It was felt that allowing new players will lead to an expansion of the banking sector and will therefore help in supporting the governments agenda of financial inclusion.

RBI has also stipulated that any applicant applying for a banking license should set up at least 25% of its branches in unbanked rural centres with a population of less than 9,999. 88% of the respondents felt that this move will play a significant role in expansion of banking services to mid cities and rural India and hence help in increasing financial inclusion in India.

2. Consolidation of Indian Banking Sector At present, there is not even a single Indian Bank which ranks amongst the top 20 banks of the world, based on market capitalisation, as compared to China which has four of its banks in the list of top 20 global banks. Furthermore, China has at least 11 banks in the list of top 100 global banks as compared to India which has only 3 banks. As of 2013, the Industrial and Commercial Bank of China (ICBC), a state owned commercial bank in China, has a market capitalisation of US$ 238 billion while the combined market capitalisation of the three Indian banks put together is just US$ 90 billion, thereby indicating a stark difference in the scale of banking operations of the two countries. Not just the scale but the size of the Chinese banking industry sets it apart from its Indian counterparts. This is quite evident from the fact that in the year 2010, China had more than 250 commercial banks, 1,96,000 business outlets and nearly 3 million employees. On the other hand, India had just 167 commercial banks, 87,768 business outlets and around 0.8 million employees.

So while new banks are important to remain competitive, it is also evident that consolidation is also the need of the hour to match to the levels of international banks. About 75% of the respondents felt that new banks will help in consolidating the banking sector.

While 75% of the respondents felt that new banks will help in consolidating the banking sector, it was quite surprising to note that only 39% of these 75% respondents felt that new banks should acquire existing smaller banks and then grow. However, irrespective of the fact that the new banks will help in consolidation of the banking sector, 58% of the total respondents felt that new banks should start afresh completely while only 42% of the respondents felt that new banks should acquire existing smaller banks and grow.

3. Allowing corporate/ industrial houses to enter the banking sector Industry has applauded RBI for adopting a balanced and a systematic approach in issuing the final guidelines. In contrast to the draft guidelines, in its final guidelines, RBI does not exclude any entity from applying for a banking license but at the same time ensures that the entity applying for a banking license meets the prudential norms and other eligibility requirements. The public debate on allowing of corporate entities to enter into the banking sector has been diverse. Most, who are not in favour of allowing corporate entities to set up banks, expressed apprehension over possible misuse of the licenses to benefit group companies of the corporate entity and the difficulties that may arise in monitoring the flow of credit to these group companies. There have also been questions raised with regard to possible conflict of interest that may arise.

On the other hand, those in favour of allowing corporate entities into the banking sector have stated that well capitalised corporate companies can play a significant role in reaching out to unbanked population spread across India. Moreover, India has witnessed many success stories of corporate entities entering other financial sector businesses, such, as, insurance, mutual funds and even non-banking financial corporations (NBFC). Furthermore, the passing of the Banking Laws (Amendment Bill) in December, 2012 gives RBI enough powers to call for information and returns of group companies and associates of banks in order to inspect the same should it be necessary. 69% of the respondents felt that corporate/ industrial houses should be given licenses while the remaining 31% felt that they should not be allowed to operate as banks.

4. New Bank Licenses Issuing Process (a) Broad Based Parameters The RBI Guidelines on New Bank Licenses are quite comprehensive in terms of the parameters for consideration while reviewing the application of prospective entrant. Some of the criteria such as diversified ownership, sound credentials and integrity and a successful track record of atleast 10 years, besides having adequate capital, indicates the cautious approach that RBI would like to adopt before issuing the new bank license. The survey also asked respondents to provide any other parameter that they thought were significant and should be therefore considered by RBI before issuing the license.

(b) Number of Licenses Currently, RBI has not set any limit on the number of licenses that it will issue to new players. However, the final guidelines state that the licenses will be issued on a very selective basis. This is quite unlike the year 2001 when RBI had made it clear that the number of licenses to be issued over a three year period will be restricted to a maximum of two or three. 59% of the respondents felt that the process of issuing bank licenses to new players should be an ongoing process.

It was interesting to note that none of the respondents felt that it would be suitable for RBI to set a cap on licenses for an indefinite period of time.

(c) Timeline for Reviewing an Application 30% of the respondents felt that the time line for reviewing a new bank application should be 6-12 months. Respondents felt that this was ample time for RBI to review the applications closely before coming to its final verdict on whether a banking license should be granted to any particular company.

(d) Reapplication in case of a rejection In the case of an application being rejected, 44% of the respondents felt that the applicant should be allowed to reapply within two years.

5. Role of Advisory Committee Once RBI receives all applications by July 1, 2013, it will undertake an in- depth examination of all applications. Thereafter, all the applications will be referred to a High level Advisory Committee, the composition of which will be decided by RBI shortly. 72% of the respondents felt that the recommendations of the advisory committee after its review of a new application should be considered seriously by RBI Board in granting license to an applicant rather than it being binding on the RBI Board.

Also, 64% of the respondents felt that other regulators should be a part of the Advisory Committee. When asked about who should be part of the Advisory Committee that will be formed by RBI, an overwhelming 69 per cent of the respondents wanted to have public policy experts and financial sector experts on the committee. Other suggestions were to have other regulators from the financial sector and prominent bankers (retired and working) as part of the Committee.

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