Reserve Bank's provisional nod for 10 small banks
The Reserve Bank of India (RBI) on Wednesday said it has accorded "in-principal" approval for 10 small finance banks that will focus on small geographies for operations but with a strong capital base.
"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," the central bank said in a statement.
Those selected are: Au Financiers, Capital Local Area Bank, Disha Microfin, Equitas Holdings, ESAF Microfinance, Janalakshmi Financial Services, RGVN (North East) Microfinance, Suryoday Micro Finance, Ujjivan Financial Services and Utkarsh Micro Finance.
Finance Minister Arun Jaitley had said in his budget speech last July that a structure will be put in place for continuous authorisation of universal banks in the private sector. 
"RBI will create a framework for licensing small banks and other differentiated banks. Differentiated banks serving niche interests, local area banks, payment banks etc. are contemplated to meet credit and remittance needs of small businesses, unorganised sector, low income households, farmers and migrant work force,” he had said.
The selection of these small banks was on the basis of the recommendations from three different committees, backed by a detailed case study for each applicant, including that by an External Advisory Committee chaired by former deputy governor Usha Thorat. 
"An important factor was proposed reach into unbanked areas and underserved sections of the population," the central bank said.
"Going forward, the Reserve Bank intends to use the learning from this licensing
round to appropriately revise the guidelines and move to giving licences more
regularly, that is, virtually 'on tap'."
In 2009, a Committee on Financial Sector Reforms under Raghuram Rajan, now the RBI governor, had examined the relevance of small banks in the Indian context. The panel felt there was sufficient change in the environment to experiment with small banks.
It recommended the entry of private well-governed deposit-taking small finance banks to offset their higher risk from being geographically focussed, by requiring a higher capital and strict norms.
Draft guidelines for licensing of small finance banks were released for public comments on July 17 last year and based on the comments, the final norms for licensing of small finance banks were issued on Nov 27.



MG Warrier

1 year ago

The approval for 10 small banks marks the fulfilment of a promise from RBI after Dr Raghuram Rajan took over as Governor to bring more players into mainstream banking business though granting differentiated banking licences. Two licences for universal banks were issued in April 2014, of which Bardhaman has already commenced business in August 2015. 11 players including Department of Posts were issued licences for starting payment banks on August19, 2015.

A revamp of the institutional arrangement in the financial sector was overdue since 1990’s and was dodged for extraneous reasons. It needed a different leadership at Mint Road for RBI to gather the courage to make new experiments despite legal and political constraints. Instead of grumbling about poaching and cannibalisation (referring to transfer of existing business to new entities), the existing banks should take this as an opportunity for preparing for competition thrown open in the banking sector and put their houses in order fast.

The MFIs and other players who could not make it in the first batch to transform into ‘banks’ should see this as an opportunity to change themselves by offering services and financial products which can compete with those offered by banks.

A word about cooperatives. NABARD should take initiative in reforming thousands of primary cooperatives(both multi-purpose and credit) so that their clientele do not migrate to the new banks for better service.

Nifty, Sensex may give up some gains - Weekly closing report

Nifty has to stay above 7,930 for the gains to continue

 We had mentioned in last week’s closing report that Nifty, Sensex are likely to move sideways and that the market lacked momentum. We had also mentioned that Nifty can decline, if it closes below 7,750. The indices moved sideways for most of week, as the markets were in a wait and watch mood for the US Federal Reserve to take its decision on interest rates. On Thursday, Ganesh Chathurthi (a holiday for Indian stock markets), US Federal Reserve decided to leave the interest rates unchanged and the fear of foreign institutional investors withdrawing partially from the Indian stock market was controlled. Immediately, on Friday, there was a rally in the Indian stock markets.
The summary of movements of indices over the week, Monday through Friday are given in the table below:
On Monday, the major indices in the Indian stock market were initially range-bound, but closed the day with gains. Hopes of a rate cut by the apex bank on the back of strong macro-economic data buoyed the Indian equities markets on Monday. The better-than-expected wholesale price index (WPI) and a modest factory output data cheered investors. The hopes of a healthy consumer price index (CPI) data, expected to be released later in the day, further supported the markets. Analysts cited healthy WPI data released on Monday and Friday's index of industrial production numbers (IIP) to be the positive triggers for the markets.
On Tuesday, market analysts felt that despite strong macro-economic data, investors remained cautious ahead of the upcoming decision on the US rate hike. Even the better-than-expected inflation and modest factory output data, which had cheered investors with hopes of a rate cut by the Reserve Bank of India, did not support buying in the markets. 
On Wednesday, the major indices in the Indian stock markets made a small gain. High interest rates in the US were expected to wean away foreign portfolio investors (FPIs) from India. It was also expected to dent business margins as access to capital from the US would become expensive. Foreign funds had already sold around $3 billion, mostly in Indian equities since August 2015. Analysts however, said a hike in US interest rates would show that the US Fed is confident of the US economy's ability to start generating growth and employment. This was expected to be beneficial for Indian exports to US.
On Thursday, a holiday for Indian stock markets, the US Federal Reserve decided to leave interest rates unchanged and it was a booster to emerging markets all over the world, which have been eager to bring in funds from foreign institutional investors.
On Friday, the markets rallied and the major indices closed with gains of around 1% over Wednesday’s closing values. However, the important indicator is that the market came off sharply from the day’s high. European markets had fallen sharply and US futures were trading sharply lower.
Out of the 27 main sectors tracked by Moneylife, top five and the bottom five sectors for this week were:


'India can be far more successful!'

India can be far more successful and far more influential than it is today, mentioned Dr Raghuram Rajan, Governor, Reserve Bank of India (RBI)


India can be far more successful and far more influential than it is today, mentioned Dr Raghuram Rajan, Governor, Reserve Bank of India (RBI) while delivering his key note address at the fourth C K Prahalad Memorial Lecture organized by Ananta Aspen Centre and Confederation of Indian Industry (CII) in Mumbai. Dr Rajan further mentioned that in the difficult times, environment for growth has to be achieved in the right way by working hard towards recovery and aiming at sustainable growth.  While the monetary policy will be accommodative there is room to expand sustainable growth potential. By continuing with reforms that the government and regulators have announced a sustainable growth potential can be achieved.
Speaking about RBI’s key task to support growth he mentioned that it would focus on keeping the interest rates low in the near term as well as future to have a moderate interest rate regime to help borrowers as well as the savers. It will also focus on cleaning up the banking sector of the distressed assets, so that it can fund the growth agenda. He also suggested that India must resist special interest rates for targeted stimulus, long tax breaks, subventions, subsidies, directed credit, all of which historically rendered industry un-competitiveness with government over extended and country incapable of gaining its rightful position among nations.
Mentioning about what RBI is trying to do and what more it needs to do in improving the environment of the financial sector Dr Rajan, elaborated on four aspects like, need to foster competition and innovation; creating hospitable environment to those who don’t belong to the club; dealing with distress for improving structures and strengthening human capital in the financial sector. 
Rahul Bajaj, Chairman, Bajaj Auto Ltd, while delivering his welcome remarks mentioned that financial sector reforms should be a continuous process so that they are aligned and are future ready. He further elaborated that the role of reforms pertaining to financial sector should be to align rules and requirements among the multiple regulators so as to simplify; enable innovation and productivity in business for the benefit of customers and shareholders; stabilise the regulatory environment, create consistent and visible guidelines, and reduce risk amongst market participants and in the overall system in general and upgrade skills within the regulators through a healthy interaction and cross-pollination with private sector.


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