New banking license announcement is first major reform in two decades

NBFCs and the private sector can now enter the banking business if they meet RBI’s criteria. This is a major move for the financial sector

Private players and non-banking finance companies (NBFCs) have reason to cheer the Budget speech as the finance minister announced that the RBI is open to giving them banking licences if they meet the apex bank’s criteria.

“The RBI is considering new bank licences to promoters in the private sector and also NBFCs, if they meet the eligibility criteria of the RBI,” Pranab Mukherjee said while presenting the annual Budget for 2010-11 in the Lok Sabha.

NBFCs like Indiabulls, Reliance Capital, Religare, IL&FS, IDFC and Aditya Birla Financial Services are likely to apply for bank licences after the RBI norms are in place.

“The Aditya Birla Financial Services Group is already a large non-bank player occupying a significant position across all its verticals. We wholeheartedly welcome this initiative and will definitely apply for a licence. The Aditya Birla Group is confident that we will meet any eligibility criteria that might be set," said Ajay Srinivasan, chief executive (financial services), Aditya Birla Group.

“The finance minister has shared the government's desire to open up the banking sector to NBFCs and the private sector. This is a significant step towards further strengthening and broadening the banking sector and bringing it closer to the aam aadmi,” adds Mr Srinivasan

No new banks have been set up in the past eight years. In fact, no new Indian bank has been set up since the first flush of liberalisation in 1993 when half-a-dozen banking licences were given. This announcement clearly demonstrates the government’s plans for liberalisation of the financial sector.

India has 96 scheduled commercial banks (SCBs)—27 public sector banks 31 private banks and 38 foreign banks—having a combined network of over 53,000 branches. According to a report by ICRA, public sector banks hold over 75% of the total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5%, respectively.

Unlike banks, all NBFCs cannot accept demand deposits. Only NBFCs which hold a valid certificate of registration with authorisation to accept public deposits can do so. NBFCs that were earlier allowed to be converted into banks were Kotak Mahindra Finance and 20th Century Finance. While Kotak has diversified into various financial services, 20th Century became Centurion Bank; it was taken over by a bunch of private equity investors and eventually merged with HDFC Bank. Two of the other new licensees in the early 1990s—HDFC Bank and UTI Bank (renamed Axis Bank)—have become very successful private banks.

The announcement also cheered the markets. The Sensex gained 175.35 points while the Nifty gained 62.55 points. Religare (an NBFC) inched up 3% to Rs371 from Rs361, Indiabulls shed 1% to close at Rs98.90, and Aditya Birla Nuvo gained 4% to end at Rs842.

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    Rajendra Pawar

    8 years ago

    Sir, Which business groups & NBFC's will interested in starting new private sector bank?


    9 years ago

    sir i want bank licence,for finance

    Akhil Agrawal

    9 years ago

    its great news that RBI is give the licence to the NBFC, and great oppourtunity in banking sector for the people who is unemployed....


    10 years ago

    Attention Suspended / Terminated Employees of Axis Bank

    As all the employee and depositors are aware, how the Axis Bank Management has forced the branch employees to mis-sell various bank products such as Metlife Insurance, ( and now Max New York ) Bajaj Allianz General Insurance, Priority Banking Savings A/c & Channel1 Current A/c to all those poor customers and shopkeepers who cannot maintain those high end average balances and looted them by charging with complicated charge structure and the ultimate beneficiary of those charges are the Top Management and the Heads of Central Office & Zonal Office Departments, who got the large chunk of Variable Pay, Functional Pay, ESOP from 25000 to 200000 every year and also the Promotions in an unethical way.

    As the Bank has withdrawn the powers of Branch Heads towards reversal of charges, the branches has adopted unethical practices to reverse those charges to customers such as increasing the DG Set fuel expenses, increasing the printing and stationery expenses, canceling the unclaimed DD and Pay Orders of customers etc, which was a serious frauds done by the employees in order to protect the interest of the depositors, as the management was not entertaining / responding to the mails sent by the branches towards reversal of charges.

    The bank has no staff accountability concept since inception till 2009 and after my whistleblower they have discharged me from the services, and after that management starting dismissing the employees to show that they have been taking serious action. While taking those decision / actions, they have not even provided the defense representative to employees to defend the case and they have taken one sided decision, without going to the root cause of the frauds.

    Now in order to bring it to the notice of general public and in order to decide the next course of action, all the suspended / terminated employees are requested to join the Private Bank Employees & Investors Protection Forum and make travel arrangement at their own cost to meet at Pune on 29th August, 2010 along with the following documents.

    a) Memo / Show cause notice issued by the bank and your reply to defend the case.
    b) Copy of the minutes of the Personal Hearing signed by you and the inquiry officer of the bank
    c) Charge sheet / Suspension Letter issued by the bank
    d) Axis Bank Investigating Committee report
    e) Termination Letter
    f) Any other documentary proof to defend your case or to prove the unethical practices of the management are welcomed

    Suspended / Terminated Employees, please note that if you have pocketed the money for personal benefits, then we will not be able to protect you, but if you have utilized those money towards reversal of charges, then yes we have all action plan to protect you and the investors interest.

    Issued in Public Interest

    Sanjay Prabhu – Pune

    President - Private Bank Employees & Investors Protection Forum

    Ex Discharged Employee & Share Holder of Axis Bank

    [email protected] 95940 88588



    In Reply to SANJAY PRABHU 10 years ago

    Attention Suspended / Terminated Employees of Axis Bank

    Please note that the venue will be at Colaba, Mumbai instead of Pune.

    Thanks & Regards,

    Sanjay Prabhu – Pune
    President - Private Bank Employees & Investors Protection Forum
    Ex Discharged Employee & Share Holder of Axis Bank

    [email protected]
    95940 88588 / 90294 96425


    10 years ago

    Respected Regulatory Authorities
    Before issuing any more licences to the NBFC & Industrial/Business houses, let us go through the ground realities from different angles as an Investor, Depositor & as a Regulator of the Republic Citizens of India and then let us come to an debatable conclusion if India really requires new faces of private banks and if answer is really YES then let us answer some questions i.e. whether the existing regulator has enough capacity to monitor those new faces? Whether the regulator was successful in the past in monitoring the existing banks? Where is the accountability of the regulator & the promoters in monitoring those sunk ships like GTB and various NBFCs like CRB, Lloyds etc ? Is our Regulator know for giving clean chits?. How does RBI monitor those mushrooming Microfinance companies ? who loot the poor by charging 25% to 40% Interest in the name financial inclusion, by adopting all unethical practices including involvement in money laundering activities. Does RBI has control over Microfinance Companies towards end use of those funds? Or is it the best time to consolidate banking sector with few private and nationalised bank and save the investors money. Let us discuss all those points in detail
    With my 17 years experience in private bank, we have seen the tremendous growth in business by adopting all unethical practices, and major chunk of business is pooled from nationalised bank, as at that time the nationalised bank were not having core banking solutions and ATM network till 2007, but now due to core banking solutions, most of the corporate and individuals feel more secured with the transparency of nationalised bank and the same concepts stands true with insurance also and hence we see the reverse scenario of shifting the business back to the nationalised bank. Refer my comment on Axis Culture Ref Business India dated 25/07/2010 & page 8 of Business India – Independence Day special issue dated 22/08/2010. “Axis Bank has grown by acquiring business by putting aggressive pressure on the branches and adopting all unethical and illegal practices and ignored fundamental aspects of banking such as operational efficiency, staff accountability, audit & compliance and hence the bank is facing a serious issues with a high NPAs, serious frauds through senior branch officials due to business pressure and also unethical HR practices like withdrawal of ESOPs up to the level of AVPs and giving 1 lac and 2 lac esops to MD and DMD, promotion not on the basis of merits and performance but on the basis of lobbying, frequent changes in PMS & Promotion policies has increased staff attrition rate. Its a time to re look into those issues seriously and grow clean & green in order to bring the permanent light from shadow. Sanjay Prabhu – Pune Ex Employee & Share Holder of Axis”
    Axis Bank in order to show 70% YoY growth, has given unachievable budgets of 90% to 100% yoy basis to Branch Head and employees and those Branch Heads has adopted all unethical and illegal practices to achieve the budgeted level of growth, and in the pressure of growing business they have unknowingly committed serious frauds not only in savings and current accounts but also a criminal breach of trust in Govt Accounts such as JNNURM 150 crores fraud with Nashik Municipal Corporation Accounts, Central Excise Chandigarh fraud, Defence Accounts frauds at Kanpur, out of court settlement with Exporters in forex derivatives frauds, Agri Credit fraud at Rajkot, Lucknow, Forex Frauds in Kolkatta and Mumbai, agricultural debt waiver and debt relief scheme frauds which has been happening for last 3 years and the bank internal and external auditors could not unearth the frauds, as the auditors like Mr. Vyas – VP & Zonal Audit Head & Mr. Nandi – erstwhile Zonal Head and presently the Audit Head of the Bank, was himself involved in serious frauds and hence before giving licences to any new faces I request CBI, Enforcement Directorate & Economic Offence Wing should investigate in to the matter and fix accountability on the Top Officials of Axis Bank.
    After my whistle blower on staff accountability, axis bank management woke up suddenly after 15 years and first time in the history of axis bank they have realised that they are dealing in public money and they have terminated the services of those branch heads and junior employees who actually where not the real beneficiaries of frauds, but the Axis Bank top management who took a large chunk of variable and functional pay along with large number of ESOPs where the actual beneficiaries of those frauds, as all unethical practices has been forced by the management on the branches in order to deliver the results at any cost and hence the branch employees had no option, but to bribe the officials and get the business and the branch heads and junior level employees have been made scapegoat by the management.
    By giving new licenses to new faces we will be compromising on safety and security aspects of public money, as the preset regulatory authority has failed in monitoring the existing private bank and if we allow new faces we will be putting more burden on the depositors money. Presently in Urban & Semi-Urban locations we see all the Nationalized & Private Sector Bank not competing but actually pulling the business of each other by adopting all unethical and illegal practices. In order to handle the same volume of business at one center we spend crores of investors money in various banks branches leased premises rentals & lavish Interiors, staff cost, Electricity and if we consolidate and grow with few private and nationalized bank, then every bank will have enough business to handle, we will see healthy competition and the greatest saving will be on the multiple cost incurred by each bank on leased premises rentals & lavish Interiors, staff cost, Electricity & transactions cost, which will definitely add value to investors / depositors money, at the same time it will be easy for Regulatory Authority too to monitor and keep a track of the situation.
    I see the future of India in villages / rural areas i.e. category III to VI Branches and hence in order to capture the great potentials of growth in Agri business and to give equal opportunity for Poor and underprivileged to enjoy better standard of living, it is our obligation to provide transparent banking facilities towards financial inclusion in those villages, but keep in mind that not at the cost of looting the poor in the name of financial inclusion. Hence RBI as the regulator should make it compulsory for all private banks that rural Savings A/c & Current A/c should have an average balance requirement of Rs. 1000/- & 2500/- respectively and the charge structure should not be the looting one as it is prevailing today in private sector banks. RBI should monitor the bank more aggressively and also keep the third eye reserved in order to monitor the worst practices adopted by the bank management, so that we can protect the interest of investors / depositors, before it is too late. I would like to quote one such example of Axis Bank failure on Corporate governance which is as under
    “In February 2010 the Times of India & Economic Times has reported that axis banks new headquarters deal in buying Bombay dyeing property at Rs. 782 croes is the costliest deal in the present market recession, where as the similar properties are available at Rs. 500 crores and even banks like ICICI is cutting its cost by shifting the major departments to hyderabad and Axis Bank being the schedule commercial bank should have invited quotes for such a huge investment of public money through all the leading newspaper for buying the property, instead they have opted illegal methods and paid the brokerage to the tune of 23.50 crores from public kitty and they have deceived the investors and taxpayers money to the tune of rs. 282 crores , plus the brokerage to the tune of rs. 23.50 crores. Banks top officials are involved in multi crore fraud of leased premises, wherein they have purchased the Branch & ATM premises in their relatives name and given it to Axis Bank at a rent which is twice above the prevailing market price and if this type of practices continues in private sector banks then I am sure the new junior faces will follow the legacy of our new and old generation private sector banks and the depositors will be taken for a Ferrari Ride.
    Wake up regulators, its time to act judiciously in the interest of the investors, as every one wants to take a bath in the holy rivers of India and make it more polluted. If this fraudulent practices continues with the blessings of our regulators, then we will see collapse of Indian financial systems and RBI will have to merge this white private sector elephants with nationalized bank and we will see more frauds in banking similar in line of satyam.
    If you really wants to give the opportunity of adding new faces in the banking, then I request you to give the opportunity to the Indian Post Offices and LIC, and I am sure they will handle the job of financial inclusion in a sincere manner.
    My sincere thanks to Dr K. C. Chakrabarty, Deputy Governor, RBI, as we see one person among the 113 crores population, who can voice the concern for investors protection and if every citizen try to perform his duties with sincerity then India can have Ram Rajya against all the odd Rawanas.

    Sanjay Prabhu – Pune
    President of Private Bank Employees & Investors Protection Forum
    Ex Discharged Employee & Share Holder of Axis Bank

    [email protected] 95940 88588


    1 decade ago

    While it is a welcome move to infuse further competition in the banking space,if the new banks are going to be concentrated in urban centres what is the use.They will only knock off cream business from the public sector making PSU banks to do the transaction intensive and low yield business,The present new generation banks are taking law into their hands,buy the govt agencies and politicians in power and do money lending business like usurious village money lenders.They never issue pass books to SB account inspite of RBI directives,use muscle power to recover loans given and continue to do so inspite of Supreme court strictures.GTB doled out crores to a broker and the chairman got away without any punishment and the bank was bailed out by merging with govt bank.What a pity? If the bank is doing well it is pvt sector's efficiency and if it loots public money govt has to bail out at public cost.Pvt banks -yes.But have stringent punishment punishment to the CMD including imprisonment if they follow illegal methods citing that our legal system is not condusive for recovery of loans,They have to operate within the legal system and not take law into their hands.They have to follow RBI norms strictly and operate within the four walls of regulation.If RBI or govt fails to enforce dispiline then one day or other the banks have to be bailed out at huge public cost and the promoters would go scot free.

    Local tailwind, global headwinds

    The Budget measures will support a short-term and a long-term rally, but the market’s medium-term prospects are clouded by global worries

    After the Budget, market experts have declared that the rally today is a “technical breakout”. This makes no sense to most of us who do not know what is called technical analysis. But the plain fact is that something has hugely changed for the better. At 16,430, the Sensex has closed at its highest level over the past one month. The immediate reason for this is that huge worries about the fiscal deficit, rising borrowings, rise in excise and other taxes are gone. It is as if a huge stone has been removed from the chest of the market. It is for this reason the short term looks good. The rally will possibly take the Sensex up to 17000-17,200, after which the market will again go down.

    It could well be that the market goes lower, thanks to global worries. There is talk of a double-dip recession in Europe. Continuing job losses in the US and talk of a bubble in China make the global situation pretty grim all over again. This will put pressure on the Indian markets in the medium term. However, the market cannot remain immune to a couple of features of the Budget. One, the amazingly low tax on salaried employees. Under the coming regime, right up to Rs8 lakh of taxable income, the tax is only 20%. This puts enormous amounts of money in the public.

    This will boost both consumption and savings, ultimately keeping the growth going. The second is that the growth momentum of Indian businesses have been kept untouched. The Budget has been a fine balancing act between growth, cutting the fiscal deficit and increasing disposable incomes. All this will be reflected in the long term growth. Unless the external shocks cripple us again, the finance minister has just put the Indian bull on steroids. 

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    Individual tax-payers will now have more money to save or splurge

    Revised income-tax slabs to increase disposable incomes; consumers, who have been feeling the pinch of rising prices, now have something to cheer about.

    Amidst all the debate about fiscal consolidation and roll-back of excise duty concessions, the finance minister has created quite a flutter in an unexpected area. The Union Budget for 2010-11 has provided individual taxpayers with some welcome revisions in tax slabs that would effectively put more money into their wallets. Consumers, who have been feeling the pinch of rising prices, now have something to cheer about.

    The revised tax slabs will be as under:

     Income upto Rs 1.6 lakh


     Income above Rs 1.6 lakh and upto Rs. 5 lakh

     10 per cent

     Income above Rs. 5 lakh and upto Rs. 8 lakh

     20 per cent

     Income above Rs. 8 lakh

     30 per cent

    While the primary threshold (amount up to which no tax is payable) remains unchanged at Rs1.6 lakh, the income bracket falling under the 10% tax slab has been revised to Rs1.6 lakh-Rs5 lakh. Previously, this bracket was fixed between Rs1.6 lakh-Rs3 lakh. Similarly, the second slab of 20% tax has been fixed at Rs5 lakh-Rs8 lakh (from Rs3 lakh-Rs5 lakh earlier). The highest tax slab of 30% will now be charged on income in excess of Rs8 lakh, compared to Rs5 lakh earlier.

    This dramatic shift in the direct tax policy means a savings bonanza for the inflation-hit consumer. Here is how your savings will shape up under the new tax system:
    Suppose you earn an annual income of Rs4lakh, your tax incidence (excluding education cess) will now amount to Rs24,000, instead of Rs34,000 earlier—a saving of Rs10,000.

    A person earning Rs6 lakh will shell out Rs54,000 in taxes. In this case, the savings compared to the earlier tax code will amount to a whopping Rs30,000.
    Similarly, a person in the highest tax slab, earning say, Rs9 lakh, will be able to save a phenomenal Rs50,000 from the tax differential.

    This is not the only carrot extended by the government, either. The existing tax-saving limit of Rs1 lakh has also been raised by an additional amount of Rs. 20,000 for investment in long-term infrastructure bonds.

    Industry experts have welcomed the move. Ranjeet Mudholkar, principal advisor, Financial Planning Standards Board India, said, “The further slackening of income-tax slabs will benefit 60% of tax-payers. Apart from these, a tax payer can also avail deduction of Rs20,000 for investment in infrastructure bonds as notified by the Government, in addition to the limit of Rs1 lakh under Section 80C. Hence, from the perspective of financial planning, a tax-payer can channelize more funds towards their chosen financial goals despite earning the same income. Also, to optimise the use of excess disposable income, a tax-payer should employ strategic asset allocation towards better asset-creation in future.”

    Nikhil Bhatia, executive director at PricewaterhouseCoopers believes this is an indication of how the slab rates will move from here onwards. “I think it is a step in the right direction. Under the direct tax code (DTC), the tax slab rates are expected to go up substantially. In that sense, it is not much of a surprise because an indication of this was coming through from the DTC itself, where the marginal tax rate has been proposed at Rs25 lakh. It is a populist move; one which will leave more money in the hands of the individual”, he said.

    Dr Suresh Surana, founder, RSM Astute Consulting Group, agreed, “The finance minister has attempted to take the tax-payer on the road to the new Direct Tax Code (DTC) (proposed to become effective from 1 April 2011), by bringing the income-tax slab rates in sync with those proposed in the DTC.”

    Contributions to the Central Government Health Scheme have also been allowed as deductions within the overall ceiling for tax rebate, besides contributions to health insurance schemes which are currently allowed as deductions under the Income Tax Act. 

    The proposals on direct taxes are estimated to result in a revenue loss of Rs26,000 crore for the government.

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    Rubal Sahni

    10 years ago

    Kindly explain tax rebates on a person working in a different city and wants to renovate the joint property in his native by raising house loan.

    Param Iyer

    10 years ago

    "Rs. 20,000 for investment in long-term infrastructure bonds" - where are these bonds??? Why is Govt delaying in notifying/releasing them? It looks like a ploy similar to the LTCG bonds that are released at the last minute & get over within a day & you need the right contacts to get them, else pay penalty as your advance taxes would have been lower. Just another way for the "mai-baap" sarkaar to make the "janta" stand in a line...

    Charanjit Jaggi

    1 decade ago


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