Mamata L4 P2 Evolution and Bank License

Banking sectorEvolution

New Bank licensesMahila Bank

Financial intermediaries• Barter => Double coincidence of wants• Money => circular flow of income• Financial intermediaries• Banking institutions• Non-banking institutions

Evolution (Pre independence)Firangi Banks•Bombay, Bengal, Madras

Presidency=> Imperial Bank’21 =>SBI’55•British Army, Bureaucrats

Swadeshi Banks• Allahabad Bank, PNB, BoB,

Canara• Focus: Foreign trade,

Merchants• Local=>Shroff,

Moneylenders.

Financial inclusion _____.(high / low)

Evolution (Pre independence)Birth of RBI: why?•By 30s: 1200+ banks•Only company law•30s Great depression =>defaults•’34 RBI

Evolution (Post-independence)•SBI, ICICI, PNB, BoB.•Focus: merchant, industrial houses•Branch increase YES•Rural penetration NO•Help in FYP achievement NO•Nexus of industrial houses vs banks.

Nationalization of Banks

Financial inclusion:• RRB• Cooperative banks• NABARD

55 1 Imperial bank69 14 50 cr. deposit80 6 200 Andra,

Vijaya, Oriental

Mock Question• Skip• Attempt• Mark n review

Mock Question (2013)Q. In context of independent India's economy, which one of the following was the earlier event to take place?A. Nationalization of insurance companyB. Nationalization of state bank of IndiaC. Enactment of Banking regulation ActD. Introduction of first Five year plan.

1. Skip 2. Attempt 3. Mark n Review

Mock Question (2009)Q. In context of independent India's economy, which one of the following was the earlier event to take place?A. Nationalization of insurance company: 55-56B. Nationalization of state bank of India: 55C. Enactment of Banking regulation Act: 49D. Introduction of first Five year plan: 51


Nationalization of Banks: problems•Administered interest rate•political interference, loan mela=>NPA=>Civil Court.•Trade union, VRS•high reserve requirement: CRR 15%, SLR 40%=> •hard to get loans for business=> BoP crisis

Nationalization: high reserve ratioDeposit Example

sTime Deposit FDRDDemand Deposit CASANet Demand and Time Liabilities (NDTL)

+100 cr.

• NBFC cannot accept Demand Deposit• CRR, SLR computed on NDTL

Nationalization: high reserve ratio: CRRDeposit Examples

Time Deposit FDRDDemand Deposit CASANet Demand and Time Liabilities (NDTL)

+100 cr.

ReserveCRR (min 3%) (-) 15 [no profit]

Cash Reserve Ratio• Both sch. & non• Penalty• No profit. Except 1999.• Right now 4%

Nationalization: high reserve ratio SLRDeposit Examples

Time Deposit FDRD

Demand Deposit CASA

Net Demand and Time Liabilities (NDTL)

+100 cr.

Reserve

CRR (min 3%) (-) 15 [no profit]

SLR (min 25%) (-) 40 [some profit]

Money left with bank =45

Statutory liquidity Ratio• All banks (sch, Non-sch.)• Cash, gold, RBI approved

securities• Right now 23%

Nationalization: high reserve ratio (PSL)

Deposit Examples

Time Deposit FDRD

Demand Deposit CASA


+100 cr.

Reserve




PSL (40%) =45 x 0.4=18

Left for normal borrowers =45-18=27 cr.

Priority sector lending• 40% of net credit• Yearly• jain

Mock Q from 2012’s CSAT

Which of the following measures would result in an increase in the money supply in economy? (2012)1. Purchase of government securities from public by central bank2. Deposit of currency in commercial banks by the public3. Borrowing by government from the central bank4. Sale of government securities to the public by central bank.Answer choice A. Only 1B. 2 and 4C. 1 and 3D. 2, 3 and 4


Which of the following measures would result in an increase in the money supply in economy? (2012)1. Purchase of government securities from public by central bank2. Deposit of currency in commercial banks by the public3. Borrowing by government from the central bank4. Sale of government securities to the public by central bank.Answer choice A. Only 1B. 2 and 4C. 1 and 3D. 2, 3 and 4

Which of the following measures would result in an increase in the money supply in economy? (2012)1. Purchase of government securities from public by central bank2. Deposit of currency in commercial banks by the public3. Borrowing by government from the central bank.4. Sale of government securities to the public by central bank.Answer choice A. Only 1B. 2 and 4C. 1 and 3D. 2, 3 and 4

Nationalization: high reserve ratio (before LPG)

Deposit Examples

Time Deposit FDRD

Demand Deposit CASA


+100 cr.

Reserve




PSL (40%) =45 x 0.4=18

Left for normal borrowers =45-18=27 cr.

Consequences?1. High cost of credit2. low expansion => jobs,

taxations, export ($$)3. SLR not lowered4. Government borrowing5. Fiscal deficit, BoP

1991: Narsimhan Committee I (GoI)•Deregulation of interest rate=>BPLR=>Base Rate.•PSL @normal interest rates=> interest subvention•Debt recovery tribunal => 1993 =>SARFAESI 2002•Liberate Branch expansion policy•Reduce CRR, SLR=>(15,40)=>(4,23)•Private / foreign banks=> 93 =>01 =>13•NBFC regulatory framework•1992=>SBI shares sold. =>GoI ~60%

1998: Narsimhan Committee II (GoI)1. NPA 0%, VRS2. Legal reforms for loan recovery. =>SARFAESI 20023. Computerization, electronic fund transfer, legal framework

=> Payment and Settlement Act=>Retail (ECS, NEFT, Card) + Wholesale (RTGS)

4. Permit new private /foreign banks.

1998: Narsimhan Committee II (GoI)

Before After1. Banks2. NBFI3. DFI (Development

Financial institutions)- ICICI, IDBI, IFCI etc.

1.Banks2.NBFI

New Bank Licenses

Private banks 90s-2001Guideline Operational Who?

93 94-95 1. ICICI2. HDFC3. UTI=>Axis (07)4. IDBI5. Indus6. DCB7. Global Trust Bank (2001 scam, OBC)8. Bank of Punjab=>Centurion bank 9. Centurian Bank=>(HDFC)10.Times Bank (HDFC)

01 03-04 1. Kotak Mahindra2. Yes Bank

Timeline of Bank License (2013)• Feb-July 2013: applications sought• 26=> Ambani, Birla, Bajaj, Tata, Muthoot, Indian post •Minus (TATA, Videocon)• +1 KC Land and finance ltd.• =25 left.• RBI High level advisory Committee, under Bimal Jalan•Mahila Bank Sep’13 (public sector BUT NOT Bimal)• Nov 2013: first meeting of Bimal

Timeline: Bimal Jalan Committee• Feb 2014: Report submitted• March 2014: EC permission sought• April 2014: In principle approval to two applicants: Bandhan Fin. Service

and IDFC

“in principle” approval• Within 18 months• Rs.1000 crore net worth• 25% branches in unbanked rural areas. • Then license under Banking Regulation Act, 1949 [Sec.22(1)]Rejected:

Bandhan Fin.Services

• West Bengal• Micro Finance Co.• Chandra Shekhar Ghosh CMD• Presently borrows from (23%.).

But Bank license- can get CASA.• 1100 Cr., 45% branches in rural

• Infrastructure Development and Financial Corporation • Mumbai, NBFC• Power project, infra. Loans• 2100 cr., but rural presence low.

Two winnersIDFC

India post: Bimal Jalan: consider separately with Govt. consultationKumar Mangalam Birla: Coal blockAnil Ambani: 2G case

Bharatiya Mahila Bank (2013-14)

• Budget 2013; 1000 crore Rs. (100% State Owned)• Nothing new: 80s Pak, Tanzania

2009• MBN Rao Panel blue print (Canara)• Sept. License. Indira Gandhi’s b’day

(November 19)• HQ Delhi but launched from

Mumbai due to model code of conduct.

Bharatiya Mahila Bank (2013)

• Usha Anantha-Subramanian • BoD=all women.• Staff, deposit= male + female;

BoB, PNB deputation.• Loan => predominantly to women.


• kitchen loans, education loans, small home-based catering businesses.• loans up to Rs 1 crore without collateral

PSB 4%Bharatiya Mahila Bank

4.5%; (1 lakh+) 5%

Kotak 6%Yes Bank 8%


• Skill development, financial literacy among women. • Core Banking Software by FIS (American

Co.)•Most banks use Finacle by Infosys.Target 1. 25% branches in unbanked rural areas.2. By March 2014: 25 branches3. By 2020: 700+ branches; 60k cr business

Bakwaas SawalWho Among the following is the chairman of Bharatiya Mahila Bank?A. Arundhati BhattacharyaB. Aruna BahugunaC. Shikha SharmaD. Usha Ananthasubramanium

Correct Statements about Bharatiya Mahila Bank?A. It was inaugurated in MumbaiB. On 25th November, the birth

anniversary of Indira GandhiC. Both A and BD. Neither A nor B.

2TFCorrect Statements about Bharatiya Mahila Bank?A. Bharatiya Mahila Bank is owned by a consortium of

Government of India, NABARD and financial institutions.

B. For the first three years, Bharatiya Mahila bank will be exempted from CRR and SLR requirements.

C. Both A and BD. Neither A nor B


2TFCorrect Statements about Bharatiya Mahila Bank?A. Bharatiya Mahila Bank is owned by a consortium of





2TF: observe what is being asked?Incorrect Statements about Bharatiya Mahila Bank?A. Bharatiya Mahila Bank is owned by a consortium of





Assertion reasoning(A) Bharatiya Mahila Bank will bring down the gender divide in financial inclusion. (R) Bharatiya Mahila bank will cater only female depositors and borrowers.OptionsA. Both the statements are individually true and Statement R is the correct

explanation of Statement A.B. Both the statements are individually true but Statement R is not the

correct explanation of Statement A.C. Statement A is true but Statement R is false.D. Statement A is false but Statement R is true.

Assertion reasoning(A) Bharatiya Mahila Bank will bring down the gender divide in financial inclusion. (R) Bharatiya Mahila bank will cater only female depositors and borrowers.OptionsA. Both the statements are individually true and Statement R is the correct

explanation of Statement A.B. Both the statements are individually true but Statement R is not the

correct explanation of Statement A.C. Statement A is true but Statement R is false.D. Statement A is false but Statement R is true.


3TFCorrect Statements about Bharatiya Mahila Bank?1. They offers higher interest rates to female depositors over male

depositors.2. The loan interest rates in Bharatiya Mahila bank, are decided by

government of India. 3. Government has provided the initial capital in this bank from Nirbhaya

Fund.Correct statementsA. Only 1 and 3B. Only 2 and 3C. only 1 and 2D. None of Above1. Skip 2. Attempt 3. Mark n Review

3TF how to solve:Correct Statements about Bharatiya Mahila Bank?1. They offer higher interest rates to female depositors over male depositors.2. The loan interest rates in Bharatiya Mahila bank, are decided by

government of India. 3. (WRONG) Government has provided the initial capital in this bank from

Nirbhaya Fund. (Hindu 10 Jan 2014)Answer Choices.A. Only 1 and 3B. Only 2 and 3C. only 1 and 2D. None of Above

3TF how to solve:Correct Statements about Bharatiya Mahila Bank?1. (WRONG) They offer higher interest rates to female depositors over male

depositors. (Hindu)2. (WRONG) The loan interest rates in Bharatiya Mahila bank, are decided by

government of India. (Base rate theory)3. (WRONG) Government has provided the initial capital in this bank from

Nirbhaya Fund. (Hindu 10 Jan 2014)Answer ChoiceA. Only 1 and 3B. Only 2 and 3C. only 1 and 2D. None of Above


MainsGS: 250 marks, 3 hours = 60 x 3 =180 minutes

Mark Words Timelimit 180

Timelimit 170

1 20 0.72 0.685 100 3.6 3.4

10 200 7.2 6.8250 5000 180 170

MainsDiscuss the importance of Bharatiya Mahila Bank in bringing down the gender divide in financial inclusion. (5m | 100 words)

Discuss the importance of Bharatiya Mahila Bank in bringing down the gender divide in financial inclusion. (5m | 100 words)• FIRST in World•Men can open accounts, interest rates• Usha Chairman, HQ Delhi.• Financial inclusion? Gender Divide?

Discuss the importance of Bharatiya Mahila Bank in bringing down the gender divide in financial inclusion. (5m | 100 words)• 2013, BMB started operation with 1k crore capital from

government of India.• Low cost education loans for girls.•Most property titles are in the name of male family member.• Loans without collateral for, upto 1 crore, for catering, creches and

other microbiz.• Targets 2020. (60k crore, 700+ branch), Rural branching 25%• Run campaign on financial literacy, awareness.• SHG, specific schemes.• Conclusion!!

Interview1. Bharatiya Mahila Bank is a mere symbolic exercise

for feel good publicity. Do you agree? Yes/No and Why?

Bharatiya Mahila Bank (2013)-Anti points•SBI, PNB, BoB better suited, Govt. already majority shareholder.•25% rural branching: duplication of effort.•Higher Staff deputation• In the first phase focus on state capitals and UT.•4.5%/5% interest – pan India presence.•Overall a Tokenism/symbol but not substance.

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Mamata L4 P2 Evolution and Bank License