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Pillar#1B-1: Classification of Financial Intermediaries: Bank & NBFC
🚩🚩🚩 FAQ: This handout is very lengthy, contains lot of Banking GK😰😰!!.
✅Ans. I’ve such Banking-GK for helping UPSC aspirants trying for Bank-exam as backup/Plan-B. Which GK is imp/notimp for UPSC = Watch lecture, you’ll get idea.
13.13.1 🦄🦄 → 🦁🦁 Nationalization of Banks After Independence (आजादी के बाद �नजी ब�कों का रा��ीयकरण)
- 13 🏛🏛 Financial Intermediaries → Banks....................................................................................................... Table of Contents
- 13.11 🐯🐯🐯🐯 ₹ 🖨🖨 Banks → Reserve Bank of India (RBI): भारतीय �रजवर् ब�क.............................................
- 13.11.1 🐯🐯 ₹ 🖨🖨 RBI Governor & Dy Governor......................................................................................
- 13.11.2 🐯🐯 ₹ 🖨🖨 RBI Offices & Departments...........................................................................................
- 13.11.3 🐯🐯 ₹ 🖨🖨 RBI: Functions of
- 13.12 🐯🐯 � Scheduled Banks (अनुसू�चत ब�क)
- 13.13 🐯🐯 �FI⇒ Commercial Banks⇒ Pre-Independence
- 13.14 🤩🤩 Golden Anniversary of nationalization- ES20
- 13.14.1 🦄🦄> 🦁🦁: Private sector banks are better than PSBs
- 13.14.2 🦁🦁 = 🐌🐌 PSBs: reasons for inefficiency & remedies?...............................................................
- 13.15 🐯🐯 � 🔂🔂Consolidation of PSBs [एकत्रीकरण]
- 13.15.1 🔂🔂Consolidation of PSBs → A) Merger (�वलीनीकरण)
- 13.15.2 🔂🔂Consolidation of PSBs → B) Privatization (�नजीकरण)
- 13.15.3 PSB Privatization: Banking Investment Company (BIC-ब�िकंग �नवेश कंपनी)............................
- 13.15.4 🔂🔂🔂🔂Anti-Arguments against Merger and Privatization of PSBs (�वरोध म� तकर्)......................
- 13.16 🐯🐯 �Commercial Banks ⇒ Pvt. Sector Banks (PvB) �नजी-�ेत्र के ब�क
- 13.16.1 🐯🐯 � 🚗🚗🚗🚗 ‘On-Tap’ License to open Private Sector Banks (जब मन चाहे तब अज� डाल दो)
- 13.16.2 🐯🐯 �Steps or procedure to open a bank (एक ब�क �ा�पत करने के क� प्र िक्रया �ा है?)
- 13.17 🚫🚫🐯🐯 � 🚗🚗🚗🚗 Allowing NBFC/Large Corporate to setup Banks
- 13.17.1 🚫🚫🐯🐯 � 🚗🚗🚗🚗: Arguments in Favour प� म� तकर्
- 13.17.2 🚫🚫🐯🐯 � 🚗🚗🚗🚗: Arguments Against: �वप� म� तक..............................................................
- 13.17.3 🚫🚫🐯🐯 � 🚗🚗🚗🚗: Conclusion about banking license to Adani/Ambani? (�न�षर्)
- 13.18 🐯🐯 � 🈶🈶 Commercial Banks ⇒ Foreign Banks (�वदेशी ब�क).......................................................
- 13.18.1 🤵🤵 Foreign Banks in India: LVB merged with DBS (�वलीनीकरण)
- 13.19 🐯🐯 � 🌎🌎🚫🚫Commercial Banks ⇒ Differential Banks
- 13.19.1 🐯🐯 � 🌎🌎🚫🚫 Commercial Banks ⇒ Differential Banks⇒ RRB and LAB
- 13.19.2 🐯🐯 � 🌎🌎🚫🚫Commercial Banks ⇒ Differential Banks ⇒ SFB & PB
- 13.19.3 🐯🐯 � 🌎🌎🚫🚫🚗🚗🚗🚗 On-Tap Licenses for starting SFB (मन चाहे तब अज� डालो)
- 13.19.4 🐯🐯 � 🌎🌎🚫🚫🚗🚗🚗🚗 Unity Small Finance Bank (SFB) gets license (2021)
- 13.19.5 Commercial Banks → 📬📬India Post Payment Bank (IPPB)
- 13.19.6 📬📬Post Office Savings Bank (PoSB)?.....................................................................................
- 13.19.7 🚐🚐 ⏳ (Proposed) Wholesale & Long Term Finance Banks (WLTF)
- 13.19.8 💸💸💸💸: Digital Payments- (Proposed) Digital Banks by NITI Aayog (2021).....................
- 13.19.9 💸💸💸💸: Digital Banking Units in Budget
- 13.19.10 💸💸💸💸: Digital Payments- NeoBanks (�चकने चुपड़े श�)
- 13.20 🐯🐯 �FI ⇒ Banks ⇒ Cooperative Banks (सहकारी ब�क)
- 13.20.1 🐯🐯 �😥😥 Cooperative Banks: Negative News (2019): PMC Bank (कांड हो गया).....................
- 13.20.2 ⚖🐯🐯🐯🐯🐯🐯🐯🐯🐯🐯🐯🐯🐯🐯Banking Regulation (Amendment) Ordinance/Act, 2020.........
- 13.21 🚫🚫🐯🐯� Formal FI ⇒ Non-Banking Financial Institutions
- 13.21.1 Development Finance Institutions (DFI: �वकास �व� सं�ान)
- 13.21.2 DFI → NaBFID: National Bank for Financing Infrastructure and Development
- 13.21.3 🚫🚫🐯🐯�What is Bad Bank- NARCL-IDRCL?
- 13.21.4 🚫🚫🐯🐯�Non Bank ⇒ All India Financial Institutions (AIFI):
- 13.21.5 🚫🚫🐯🐯�FI ⇒ Non-Bank ⇒ Primary Dealers (PD)- (प्राथ�मक �वक्रेता ).....................................
- 13.21.6 🚫🚫🐯🐯�FI ⇒ NBFCs (गेर-ब�िकंग �व�ीय कंप�नया)
- 13.21.7 🚫🚫🐯🐯� NBFCs Regulated by RBI 🐯🐯 (�नयंत्रण/देखरेख )
- 13.21.8 🚫🚫🐯🐯�Credit Information Companies (CIC) versus Credit Rating Agencies (CRA)
- 13.21.9 🚫🚫🐯🐯� NBFCs Regulated by SEBI 🐱🐱 (📑📑More in Pillar#1C).........................................
- 13.21.10 🚫🚫🐯🐯� NBFCs Regulated by Others 🦊🦊
- 13.21.11 🐯🐯(🚫🚫🐯🐯): NBFC: Shadow Banking (आभासी / प्र �तछाया ब� िकंग प्र णाली )
- 13.21.12 🧕🧕NBFC-not allowed in India: Islamic Banking
- 13.21.13 🧔🧔🧔🔪🔪🔪🔪🔪🔪 Informal Financial Intermediaries (अनौपचा�रक �व�ीय म��)
- 13.21.14 ✍🎷🎷 Mock Questions for Mains
13.11.1 🐯🐯 ₹ 🖨🖨 RBI Governor & Dy Governor ⇒ RBI Act (Section 8) provides for “NOT MORE than 4” Dy. Governors. ⇒ They’re selected by Financial sector regulatory appointment search committee (FSRASC) headed by the Cabinet Secretary (IAS) → successful candidates’ names sent to Appointments Committee of the Cabinet headed by the Prime Minister for final approval.
⇒ Governor and Dy.Govs’ tenure usually (not always) 3 years. Re-appointment is possible. कायर्काल ⇒ 2018-Dec: Shaktikanta Das appointed as Governor for 3 years, he replaced Urjit Patel. 2021: Modi Govt renewed his tenure for three years till Dec- 2024, thus giving him a total tenure of six years (�रज़वर् ब�क के गवनर्र के �प म� पुनः �नयु��) ⇒ Shaktikanta Das is Retd. IAS, Former finance secretary, Member of 15th^ Finance Commission.
📑📑 Related Topics: RBI Autonomy, Dividend Controversy, Section 7, PCA/BASEL: [Handout 1B2 → Burning Issues in Banking Sector]
13.11.2 🐯🐯 ₹ 🖨🖨 RBI Offices & Departments
- RBI 4 regions: Northern: Delhi, Eastern: Kolkata, Southern: Chennai, Western: Mumbai
- RBI has various dept after Banks, NBFCs, Payment Systems, Foreign Exchange Management etc.
13.11.3 🐯🐯 ₹ 🖨🖨 RBI: Functions of
Controller of Money Supply: Issues M0 under RBI Act, Makes Monetary Policy. (मुद्रा आपू�त �नयंत्रक )
Controller of Foreign Exchange: through FEMA Act. (�वदेशी मुद्रा का �नयंत्रक , 📑📑more in Pillar#3)
Banker to Governments & Public Debt Manager (सावर्ज�नक ऋण प्र बंधक ).
Banker’s Bank : Lender of Last resort, Advises in monetary matters.
Regulator of all “BANKS”: through BR Act’49, Payment Systems’07 (�नयामक)
Regulator of AIFI, NBFC-D & others.
Promotional Roles (संवधर्क भू�मका): a. Customer protection through Ombudsman (�शकायत �नवारण अ�धकारी), b. Financial Inclusion through PSL norms. Requires bank to open 25% of branches in rural areas
Data Publication & awareness e.g. Annual Financial Stability Report (वा�षक �व�ीय ��रता �रपोटर्)
- International Cooperation e.g. BASEL, IMF, G20’s Financial Stability Board etc. a. E.g. 2021: RBI became member of “Network For Greening The Financial System (NGFS)”. NGFS is a group of central banks to contribute to the development of environment. HQ: Paris, Foundation Year: 2017 (�व�ीय प्र णाली क� ह�रयाली के �लए नेटवकर्- तािक अ�य ऊजार्, पयार्वरण आिद को मदद �मले) 🚩🚩🚩 FAQ: Article 371-F of Constitution gives special status to Sikkim, as a result their State Bank of Sikkim is outside RBI’s regulation!! Ans. Such JamesBond/obscure GK = poor cost benefit.
🔠🔠❓ RBI acts as a bankers’ bank. What does it mean? (UPSC-Pre-2012)
- Other banks retain their deposits with the RBI.
- The RBI lends funds to the commercial banks in times of need.
- The RBI advises the commercial banks on monetary matters. Answer codes: (a) 2 & 3 only (b) 1 and 2 only (c) 1 and 3 only (d) 1, 2 and 3
🔠🔠❓ RBI regulates the commercial banks in matters of (Asked in UPSC-Pre-2013)
- Liquidity of assets 2) Branch expansion 3) Merger of banks 4) Winding-up of banks Answer Codes: (a) 1 & 4 only (b) 2, 3 & 4 only (c) 1, 2 & 3 only (d) 1, 2, 3 & 4
🔠🔠❓ In India, the central bank’s function as the ‘lender of last resort’ means what? ( क�द्रीय ब�क को अं�तम उपाय का ऋणदाता कहा जाता है इस श� का मतलब �ा है) (Prelims-2021)
- Lending to trade and industry bodies when they fail to borrow from other sources. [�ापार औद्यो�गक सं�ाओं को जब कहीं और से कजर् नहीं �मले तो क�द्रीय ब�क कजर् देता है]
- Providing liquidity to the banks having a temporary crisis.[अ�ाई संकट के दौरान ब�कों को तरलता देता है]
- Lending to governments to finance budgetary deficits [बजट घाटा पूरा करने के �लए सरकार को कजार् देता है] Codes: a) 1 and 2 b) 2 Only c) 2 and 3 d) 3 Only
13.12 🐯🐯 � SCHEDULED BANKS (अनुसू�चत ब�क)
When RBI is satisfied with TWO conditions simultaneously ( दो शत� का एक साथ पालन होना चािहए ) ⇒ #1: That a public sector or pvt sector bank has (Paid Up Capital + Reserves#1) = Min ₹5 Lakhs
🐴🐴 Scheduled Bank (अनुसू�चत ब�क ) 🐭🐭 Non-Scheduled Bank (गैर- अनुसू�चत) Govt departments and big private sector companies are more likely to open their bank accounts/ employees’ salary deposit accounts in it.
Less likely to happen. ( ग़ैर अनुसू�चत ब�कों म� सरकारी �वभाग या बड़ी कंप�नयों वाले अपने ब�क-खाते खोले इसक� संभावना कम होती है)
Bank becomes eligible to partner in the govt’s financial inclusion scheme e.g. PM Jan Dhan Scheme for opening bank accounts of poor people. (Ref Pillar1D3: financial inclusion)
Usually not eligible. ( �व�ीय समावेशन क� सरकारी योजनाओं म� ग़ैर अनुसू�चत ब�कों को सामा�त: शा�मल नहीं िकया जाता है. जैसे िक प्र धानमंत्री जनधन योजना म� गरीबों का ब�क खाता इन ब�को म� नहीं खोला जा सकता.)
- Airtel Payments Bank and Paytm Payment Bank categorised as a scheduled bank in 2021-22. 🚩🚩🚩 FAQ: “After getting scheduled status, Can Payment Banks give loans/credit cards or accept Fixed Deposits?” Ans. No, they’re prohibited from such activities. Paytm doing such activities as “an Agent” of a federal bank, IndusIndia bank etc but Paytm cannot do it as ‘its own Banking business’.
13.13 🐯🐯 � FI ⇒ COMMERCIAL BANKS ⇒ P RE -I NDEPENDENCE
Table 2: Before Independence (Exact Years Not-IMP.) 1770 Bank of Hindustan, Calcutta (Europeans owned it. So it was not truly ‘Swadeshi’) 1806 - (^42) - Three Presidency Banks at Bengal then Bombay then Madras.
- 1861: all three were given the right to issue currency.
- 1921: They were combined into Imperial Bank of India⇒ SBI (1955) 1865 Allahabad Bank (Europeans owned) 1894 PNB: Indian owned, Lala Lajpat Rai helped in foundation. 1908 Bank of Baroda by Maharaja Sayajirao Gaekwad III 1913 - 30s State Bank of Mysore, State Bank of Patiala, the rise and collapse of Banking industry, then Birth of RBI (1935) 1940s State bank of Bikaner, Jaipur, Hyderabad, Travancore by the respective princely states / Nawabs. Post-Independence, these banks became ‘Associated Banks of SBI’, and ultimately, merged in SBI (2017).
13.13.1 🦄🦄 → 🦁🦁 Nationalization of Banks After Independence ( आजादी के बाद �नजी ब�कों का रा��ीयकरण ) ⇒ NEXUS between Banks and Industrialists: From 1950s to 60- only 188 elite people controlled the economy by being in board of top 20 banks, 1452 companies. This led to reckless lending to directors and their firms. So, Banks failed frequently, RBI had to close them. (रसूखदार लोग के क�े म� थी ब�िकंग �व�ा. भाई भतीजावाद म� अंधाधुन कजर् देते थे)
⇒ Private Banks unwilling to open in rural areas- this did not help in financial inclusion of poor, farmers, MSME or achievement of Five Year Plan (FYP) targets or reducing regional imbalance. (�व�ीय समोवेशन, पंचवष�य योजनाओ के ल�ाक हा�सल करने म� �नजी �ेत्र के ब�क मदद नहीं करते थे. �ेत्रीय असमनाताए बढ़ी) Table 3: Nationalization & Merger of Banks after Independence 1948 RBI Transfer of Ownership Act. 1948: Op. Polo, Hyd. → 1951:1st^ FYP, → 1953: Air India nationalized from Tata 1955 Imperial Bank nationalized and became SBI. 1955 - 56 LIC Act took over private life insurance cos. 57: 1st^ Communist Govt in Kerala 61: Operation Vijay for liberation of Goa, Daman and Diu. 1963 State Bank of Jaipur and Bikaner merged together. (^1969) ⇒ 'Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969: 14 Private banks with ₹ 50 cr/> deposits were nationalized e.g. Bank of Baroda, PNB, Dena, Canara etc. (बड़ी जमा-रा�श वाले �नजी ब�को का रा��ीयकरण) ⇒ Catholic Syrian Bank (1920, Kerala), Ratnakar Bank, Dhanlaxmi Bank, etc., did not have such large deposits, so they were not nationalized. So, they are called “Old Private Banks”. 1972 - 73 GIC Act- took over private Non-Life (=General) insurance cos. Later GIC was re- organized with 4 subsidiaries: National Insurance, New India Assurance, Oriental
Insurance and United India Insurance. More in 📑📑 Pillar#1D
1980 6 banks with ₹ 200 cr/> deposits were nationalized e.g. Corporation Bank, Vijaya Bank, Oriental bank of Commerce etc. (^2019) Previously, State Government of J&K owned 60% shares in J&K bank → Article 370 removal → Union Government took-over this shareholding. 🎓🎓✋Further 500 type historical-GK things on how it functioned before and how it’ll function afterwards...poor cost benefit. Reform Committee s
following Committees were made for reforms in banking sector M Narasimham-I (1991), M Narasimham-I (1997), Dr. Raghuram Rajan Committee (2007) and P J Nayak Committee (2014) Death देहांत
2021: Death of M Narasimham. He was ex-Governor of RBI and chairman various Committees on Banking Sector Reforms, therefore known as “father of Indian banking system reforms” ( एम नर�संहम भारतीय ब�िकंग प्र णाली सुधार के �पतामह माने जाते है। )
🔠🔠❓ (Prelims 2009) Q. In independent India's economy, which was the earlier event to take place? A) Nationalization of insurance companies B) Nationalization of State Bank Of India C) Enactment Of Banking Regulation Act D) Introduction of first Five year plan 🔠🔠❓ (Prelim-2018) Q. Consider the following events:
- The first democratically elected communist party government formed in a State in India.
- India’s then largest bank, ‘Imperial Bank of India’, was renamed ‘State Bank of India’.
- Air India was nationalised and became the national carrier.
13.14.2 🦁🦁 = 🐌🐌 PSBs: reasons for inefficiency & remedies?
🐌🐌 Reasons why PSBs are inefficient? सावर्ज�नक �ेत्र के ब�क प्र भावहीन है �ों िक →
Solutions by 📔📔📔📔 ES20 (More details in 📑📑 Pillar#1B2) हम �ा सुधार कर सकते है? 😰😰PSB staff’s salary does not depend on the profitability of the bank. Employee unions frequently engage in strikes/ hartals. → प्रदशर्न आधा�रत तन�ाह नहीं. बार बार हड़ताल पर चले जाते है
- Allow campus recruitment, lateral entry in higher management positions
- Make employees ‘part owners’ through Employee Stock Ownership Plan (ESOP) 😰😰They’ve apathetic attitude towards the use of artificial intelligence, computer technology, marketing, and customer satisfaction. → नई तकनीक� अपनाने म�, तथा ग्र ाहकों का संतोष बढ़ाने म� इन ब�कों का उदासीन रवैया है
- Use Artificial Intelligence (AI), Machine Learning (ML), Big Data Analytics, geotagging of mortgaged assets etc.
- setup an organization PSBN Network to implement above ICT-solutions. Further, Since the government is the majority shareholder in PSBs, (सरकार ब�मती शेयर धारक है इस�लए)
🤡🤡 Usually the persons favored by the present-day ruling party become the Board of directors, irrespective of merit or qualification. Thus, political considerations have significant control/influence over bank’s business operations. (बोडर् मे राजनी�तक त�- �जनम� ब�कों का सही प्र बंधन करने का अनुभव या कौश� नहीं है)
� 🕵🕵:😰😰 PSBs are subjected to Right to Information (RTI) act, Central Vigilance Commission (CVC), Comptroller Auditor General (CAG), Central Bureau of Investigation (CBI), Courts and media in a more stringent manner. (ब�कर खौफ म� रहते है क� ईमानदार �नणर्य क� भी शक क� �नगाहो से जांच होगी, और उनक� पदो��त रोक दी जाएगी)
Consequently, PSB officials fear harassment under the veil of vigilance investigations & media- trials. They prefer safety and conservatism over risk-taking and innovation. (�िढ़वाद पसंद, नवाचार नापसंद)
13.15 🐯🐯 � 🔂🔂 CONSOLIDATION OF PSBS [एकत्रीकरण]
PSB consolidation = made up of two types of reforms: A) Merger B) Privatization
13.15.1 🔂🔂 Consolidation of PSBs → A) Merger ( �वलीनीकरण ) Table 4: Notable PSB Mergers before 2019, April. ✋ You need not memorize exact years/ HQ for IAS Exam 2008 - 10 State Bank of Saurashtra and State Bank of Indore merged into SBI.
(^2013) - Bharatiya Mahila Bank setup as PSB, HQ Delhi, 100% ownership by Union Government. ( भारत सरकार ने �यं बनाया था)
- BMB’s Board of Directors: All women. Staff & Deposit Holders: both men and women, Loans given predominantly to women- and that too without collaterals upto Rs.1 crore. 2017, 1st April
BMB & 5 Associated Banks of SBI viz. State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Travancore (SBT), merged with SBI from 1st^ April by swapping of shares. 2017, Nov (^) - Alternative Mechanism Panel setup under the Finance Minister’s chairmanship.
- This panel examine the proposals for merger/consolidation of the Public Sector Banks (PSBs) and forward to Cabinet for approval.
- Department of Financial Services coordinates the filework. 2019, 1st April
Vijaya & Dena to be merged into Bank of Baroda.
- Among these three oldest: BoB (1908) > Vijaya (1931)> Dena (1938)
- BoB & Dena nationalized in 1969, HQ: Mumbai
- Vijaya: nationalized in 1980, HQ. Bengaluru Table 5: 2019, FM Nirmala.S announced merger of 10 banks into 4 anchor banks Amalgamating Banks → → → ( एक�कृत / �वलीन होनेवाली)
Anchor Bank ( सहारा देनेवाली) − Oriental Bank of Commerce (1943, HQ: Gurugram, Haryana), − United Bank of India (1950, Kolkata)
PNB. (1984, HQ: Delhi, It’ll become the 2nd largest bank after SBI, in terms of business size and branch network) Syndicate Bank (1925, HQ: Manipal, Karnataka)
Canara Bank (1906, HQ: Bengaluru, Karnataka) − Andhra Bank (1923, Hyd) − Corporation Bank (1906, Mangaluru)
Union Bank of India (1919, Mumbai)
− Allahabad Bank (1865, Kolkata) 4) Indian Bank (1907, Chennai) After this process is over, we’ll be left with only 12 PSBs (+1 India Post Payment Bank).
- Benefit? Geographical & technological synergies in ATM, Branches, Security Staff, Servers cost etc. (भौगो�लक और तकनीक� तालमेल)
- resulting into reduced cost of business → better lending & deposit rates. Such bigger banks can even expand business at global level. 📔📔📔📔 ES20 Vol1Ch7 on 50 years of bank nationalization also noted:
⇒ 😰😰2019: Global top-100 banks: China (18 banks), USA (12 Banks), Japan > France > …..India (only 1 bank: SBI at Rank#55). �व� क� 100 सबसे बड़ी ब�कों म� भारत का �सफर् एक ही ब�क है
⇒ 😰😰Even Sweden and Singapore have more global banks than India, even though these countries’ size of economy (GDP: सकल घरेलू उ�ाद) is much smaller than India.
Ministry (चार सरकारी ब�को का �नजीकरण होगा ऐसे अखबारों म� समाचार, िकं�ु �व� मंत्रालय ने अभी इन समाचारों क� पु�� नहीं क� है)
13.15.3 PSB Privatization: Banking Investment Company (BIC-ब�िकंग �नवेश कंपनी) Removed from handout because outdate/faded topic until Finance Ministry implements it.
13.15.4 🔂🔂🔂🔂 Anti-Arguments against Merger and Privatization of PSBs (�वरोध म� तकर्)
- Employees worried seniority, promotion, increments (व�र�ता, पदो��त, वेतन वृ�द्ध );
- Financial burden of Voluntary Retirement Scheme (VRS: �ै��क सेवा�नवृ�� योजना का �व�ीय बोझ).
🚩🚩🚩What is VRS? Ans. Explained in Video lecture.
- Transfer and VRS of employees → Banks may lose regional identities & customer intelligence. (�ेत्रीय पहचान चली जाएगी)
- Big customers may shift to other banks for faster service and personalized privileges. (तेजी से सेवा और ���गत सेवाए नहीं �मलने पर �ापारी दूसरे ब�कों म� खाता खोल�गे)
- Private sector banks are no saints. There have been instances of private sector banks engaging in money laundering activities, taking bribes to pass loans to unworthy borrowers- which ultimately harm depositors (�नजी �ेत्र के ब�क काले धन को वैध बनाना , �र�त लेकर गलत लोगों के लोन पास करना, और दूसरी �व�ीय धांधलीयों म� शा�मल है। इस�लए �नजीकरण को हमारी सम�ाओं का रामबाण इलाज मानना गलत होगा। )
13.16🐯🐯 � COMMERCIAL BANKS ⇒ PVT. SECTOR BANKS (PV B) �नजी-�ेत्र के ब�क
While the nationalization of banks was done with the lofty objectives, but politicization in Public Sector Banks (PSBs) created new set of problems:
- Government administered loan interest rates for populism= Low profitability for PSBs. (मुनाफा कम)
- Political Interference= Low recovery difficult (राजनी�तक ह��ेप के चलते दबंग त�ो से ऋण वसूली मु��ल)
- Employees Unions hampering any innovation or customer responsiveness. (नवाचार, ग्र ाहक सु�वधा कम)
- 1991: Balance of Payment crisis (BoP: भुगतान संतुलन,More in Pill#3) finally forced Govt. to set up a committee for Banking Sector Reforms under The former RBI Governor M.Narasimham. He suggested: o Govt should ↓ its shareholding in Public Sector Banks. (सरकार अपनी शेयर िह�ेदारी कम करे) o RBI should ↓ CRR and SLR (सीआरआर, एसएलआर मे कटोती करे) o Govt should not dictate interest rates to Banks. Liberalize the branch expansion policy (ब�कों को लोनदर, शाखा �व�ार नी�त तय करने मे सरकार दखल न करे।)
o Allow entry of New Private Banks and New Foreign Banks. (�वदेशी ब�क और �नजी �ेत्र के ब�कों को अनुम�त) Table 6: Three rounds of bank licensing in India Round-1 (1993-95) Round-2 (2001-04) Round 3 (2013-16)
ICICI
HDFC
IndusInd
DCB
#^ UTI → later Axis bank
#^ IDBI → now owned by LIC
Global Trust Bank → Merged with Oriental Bank No. 8-9-10: Bank of Punjab, Centurian Bank, Times Bank were merged into HDFC
Kotak Mahindra
Yes Bank (Founder Rana Kapoor). Related Topic : Yes bank scam/Crisis 📑📑 Pillar#1B2: Bad loans & other Burning issues in Bank/NBFC sector
Rajan invited applications, Bimal Jalan Committee made selections:
- Bandhan (A Microfinance company based in W.Bengal)
- IDFC (An infra finance NBFC based in Maharashtra). Later on, another NBFC “Capital First” merged so renamed into IDFC-First Above banks are also known as new-generation private banks in India. (नयी पीढ़ी के �नजी �ेत्र के ब�क )
🚩🚩🚩 FAQ: In early 90s- UTI Bank & IDBI Bank were not private sector banks, then why have you kept them here in table? Ans. Because presently, they’re private sector banks. I don’t have to submit this handout as evidence in the Supreme Court so I don’t care being so pedantic about everything. You need to change your approach towards studies, to finish syllabus faster.
13.16.1 🐯🐯 � 🚗🚗🚗🚗 ‘On-Tap’ License to open Private Sector Banks (जब मन चाहे तब अज� डाल दो) A private entity can open Bank only after getting license from RBI under Banking Regulation Act,
- Previously, one had to wait till RBI invited applications. But in the On-Tap system (WEF 2016), one can apply to RBI whenever he wishes (like a driving license), provided that: 1. It is a Resident Indian individual, NBFC, or private company 2. min. 10 years of experience in Banking-Finance Sector, ( अनुभव )
- Proposed Bank’s shareholding will be initially controlled by Indians. ( शेयरमालीक� भारतीयों के हाथ म� )
- Must be willing to open 25% branches in unbanked rural areas. (ग्रामीण इलाकों म� कुछ शाखाएं खोली होगी) 5. Min. 500 crore capital required. ( �ूनतम इतनी पूंजी होनी ज�री पूंजी ) 6. ✋Large industrial groups and NBFC with more than ₹5000 crore asset not allowed. ⇒ Examples of On-Tap Universal Bank Applicants in 2020-21: Chaitanya India, Pankaj Vaish etc. ⇒ RBI’s Shyamala Gopinath committee reviews/pass-rejects the applications. ( समी�ा स�म�त)
🚩🚩🚩 FAQ: isn’t above definition conflicting with Scheduled Commercial Bank? Ans, given below
13.17.2 🚫🚫🐯🐯 � 🚗🚗🚗🚗: 😰😰 Arguments Against: �वप� म� तक
⇒ 😰😰Increased competition may lead to a natural tendency of mis-selling the products and lending money to more risky businesses as evident from 2008's American Subprime crisis. अ�ा�धक �धार् के चलते येन केन प्र कार से मुनाफा बटोरने के �लए अनाव�क �प से जो�ख म लेकर कमजोर कंप�नयों को लोन िदए जाएंगे
⇒ 😰😰PNB-Nirav Modi loan scam, Yes Bank-Rana Kapoor scam, ICICI-Vodafone loan scam = RBI has failed to effectively supervise even the existing banks. (�रजवर् ब�क वतर्मान ब�कों क� �नगरानी करने म� भी कमजोर सा�बत �आ है)
⇒ 😰😰Already large NBFCs are involved in scams: ILFS scam, DHFL scam, Karvy Capital Scam- the critics are afraid that allowing large NBFCs in the Banking sector = more such scams. �व�ीय घोटालों क� मात्रा बढ़ेगी
⇒ 😰😰Corporate governance in large industrial houses is not inspiring confidence at present e.g. Ratan Tata vs Cyrus Mistry, Infosys founder Narayan Murthy versus ex-CEO Vishal Sikka etc. Allowing them in the banking sector is not advisable. बड़ी कंप�नयों का कॉरपोरेट शासन ठीक नहीं है. सं�ापक आपस म� ही लड़ते झगड़ते रहते ह�
⇒ 😰😰Large industrial houses like Tata, Ambani, Adani- may use the depositors money mainly to finance their own projects/ nepotism, even if such projects are not viable- There will be evergreening of loans for them. भाई भतीजावाद म� लोन िदए जाएंगे, पुरानी लोन चुकाने के �लए नया लोन िदया जाएगा, भले कजर्दार का प्र ोजे� बेकार हो.
⇒ 😰😰Could be misused for money laundering by big industrialists. (काले धन को वैध बनाने म� दु�पयोग)
⇒ 😰😰May concentrate India's economic power, depositors' savings in the hands of few oligarchs. Then it could destabilize the entire banking system. (बचत कतार्ओं क� जमा पूंजी और भारत क� आ�थक श�� कुछ �गने-चुने रसूखदार/कुलीनवगर् के हाथों म� क�िद्रत , �जसे पूरी ब�िकंग �व�ा अ��र होने का खतरा। )
⇒ 😰😰Even in developed countries regulators do not encourage the entry of large corporates in the banking sector mainly for the apprehensions about governance and financial stability. (�वक�सत देशों म� भी �व�ीय �नयंत्रक इस प्र कार क� अनुम�त नहीं देते �ोंिक उ�� भी ब�िकंग शासन और �व�ीय ��रता म� जो�खम िदखता है) 2021-Sept: Newspapers indicate that RBI is unlikely to implement PK Mohanty suggestion.
13.17.3 🚫🚫🐯🐯 � 🚗🚗🚗🚗: Conclusion about banking license to Adani/Ambani? ( �न�षर्)
⇒ ✋ Anti: Considering aforementioned challenges, risks far outweigh the benefits. RBI and government should focus on improving the administration & supervision of existing bank instead of allowing large industrial houses here. (आकषर्ण/फायदे कम और चुनौ�तयां �ादा। इस�लए यह करने क� जगह, वतर्मान ब�कों का प्र शासन और �नगरानी ठीक करने म� जोर देना चािहए.)
⇒ 🤩🤩 Pro: Considering above benefits, Large NBFC and industrial houses may be given bank licences after due diligence & effective supervision. (उ� फायदों को देखते �ए, प्र भावी �नगरानी के साथ इ�� ब�क का लाइस�स देना चािहए)
13.18 🐯🐯 � 🈶🈶 C OMMERCIAL BANKS ⇒ F OREIGN BANKS (�वदेशी ब�क)
In Nehruvian Socialist Economy there was disdain & apprehensions about Foreign Banks. So, only a handful of them were allowed to open branches. But, Post-1991-Reforms: system liberalized. ( नेह� -
समाजवादी �वचारधारा के नी�त �नमार्ताओं म� �वदेशी ताकतों के प्र �त घृणा और डर → ब�त कम �वदेशी ब�कों को अनुम�त दी थी )
🤠🤠 Foreign Bank in India
- They’re Incorporated abroad (i.e. registered under the Companies Act of a foreign nation) & opening branch / subsidiary in India e.g. Citibank, Bank of America, HSBC. उ�ोंने िकसी अ� देश के कंपनी कानून म� पंजीकरण करवाया है और िफर भारत आकर शाखाएं खुली है
- While CRR, SLR & other norms applicable, but PSL norms vary depending on number of branches. [ 📑📑 Ref: Prev. Handout: PSL]
- RBI gives them ‘on-tap’ license on reciprocal basis. (REF: Lecture for its meaning) 🧔🧔 Indian Public Sector Bank
- Foreigners can invest max. 20% in its shareholding. E.g. BoB (15%), SBI (14%), PNB (13%) भारत क� सावर्ज�नक �ेत्रों म� �वदेशी �नवेश क� सीमा
- Although Government thinking of raising it to 49% to help capital mobilization for BASEL-III norms. [ 📑📑 More in Next NPA handout] 🤵🤵 India Private Sector Bank
- Foreigners can invest upto 49% (automatic-�चा�लत तरीके) and upto 74% by approval of Government (सरकार क� अनुम�त लेकर). (More in 📑📑Pillar#3A: FDI)
- e.g. HDFC (73%), ICICI (59%) Axis Bank (52%) is owned by Foreigners.
- Although Govt thinking of ⏫ to 100% to help capital mobilization for BASEL-III norms. [ 📑📑 More in Next Pillar#1B2: NPA handout]
13.18.1 🤵🤵 Foreign Banks in India: LVB merged with DBS ( �वलीनीकरण) ⇒ 1926: Lakshmi Vilas Bank (LVB) was set up in Tamilnadu. So it is an Old Private Sector Bank. (�नजी �ेत्र क� पुराने जमाने क� ब�क) 2020-Nov: Its financial situation became weak. ⇒ So, RBI approved its merger/amalgamation with Development Bank of Singapore DBS- which is, a Foreign bank operating in India. (�व�ीय हालत कमजोर होने पर अ� एक ब�क म� �वलीनीकरण)
13.19 🐯🐯 � 🌎🌎🚫🚫 COMMERCIAL BANKS ⇒ DIFFERENTIAL BANKS
🚩🚩🚩 FAQ #: M.Narasimham committee was made in 1990s so how can he be in 1970s? Ans. Same
gentleman was chairman of many committees ✅(1) Financial inclusion (1970s) ✅(2) banking
reforms-I (1990s) ✅(3) banking reforms-II (1990s).
🚩🚩🚩 FAQ: I’ve 500 jaat-ke Doubts about Local Area Banks. Ans. Not Important for UPSC. I’ve only given short-note of LAB for helping UPSC aspirants trying for Bank-exam as backup/Plan-B.
13.19.2 🐯🐯 � 🌎🌎🚫🚫 Commercial Banks ⇒ Differential Banks ⇒ SFB & PB On Nachiket Mor Committee’s recommendations (2013-14), Governor Raghuram Rajan approved these new types of banks for (1) financial inclusion (2) competition & innovation among players. Parameters Small Finance Banks लघु �व� ब�क Payment banks भुगतान ब�क Examples Capital Small Finance Bank (Punjab), Ujjivan (Karnataka), Utkarsh (UP): Total 10 list at rbi.org.in/scripts/banklinks.aspx
6 at present: Airtel, India Post, FINO, Paytm, Jio, NSDL. (Total 11 were selected; but AdityaBirla-Idea & other withdrew later ) Eligibility during 1st round of licensing
Min.100cr. capital-walla Resident Indian, Local Area Bank, NBFC, Micro-finance, with 10 years exp. in banking / finance
Min.100cr. capital-walla resident Indians, NBFCs, PPI-wallets (pre-paid payment instrument), mobile telephone companies, super-market chains, cooperatives & companies controlled by resident Indians 📌📌 Area RBI Committee gave selection preference North East & Central India clusters where Universal Banks’ penetration is poor
Anywhere
CRR, SLR,
Repo, FDI?
Same as Indian private banks Same as Indian Private Banks, but special terms & condition in SLR. Rural Penetration
Must have 25% branches in unbanked rural areas
No need but 25% access points must be in rural areas like Business correspondence (BC), Kiraana Stores 🛒🛒 Target Consumers
Unserved Underserved Farmers, Micro, Small industries: िकसान, सू� , लघु उद्योग
Promoting Small savings Remittance of migrant labors, low income households, unorganized sector, small business. 💰💰 Accept Deposits
Yes, without any restrictions िडपॉ�जट �ीकार करने म� कोई पाबंदी नहीं है
✋No NRI deposits, ✋No Fixed deposit**
- Can accept only Demand Deposits and Max. balance Rs.1 lakh per customer. (In 2021- limit increased to ₹2 lakhs) Debit cards (^) 💳💳 YES can give. 💳💳 YES can give.
Parameters Small Finance Banks लघु �व� ब�क Payment banks भुगतान ब�क Credit cards (^) 💳💳 YES can give. ✋No (because can’t give “loan”) Loans (^) - Yes, but 75% in PSL,
- 50% of loan portfolio of Rs. 25 lakhs/< loans. - Can’t loan, So no PSL. - They’re required to invest all deposits in G-sec, T-Bill and in other SCBs. ✋How much% notimp. Evolve/ future growth?
After 5 years can become Universal Commercial Bank, If RBI is satisfied.
After 5 years can become Small Finance Bank, If RBI is satisfied with their record.
- BASEL-III norms applicable on both of SFB & PB. (More in 📑📑 Pillar#1B2:BASEL Norms)
- Both SFB & PB can sell Mutual Fund (MF), Pension, Insurance policies with approvals of respective regulators i.e. SEBI, IRDAI, PFRDA.
🚩🚩🚩 FAQ: You wrote that Payment Banks can't accept FD or give loans or credit card but Paytm is doing that!!?? Ans: Paytm doing FD/Credit Card/Loan activities as “an Agent” of a federal bank, IndusIndia bank etc. Similarly, Although India Post Payments Bank (IPPB) cannot give loans because it is a payment bank but signed a deal with HDFC Bank to give home loans as an ‘Agent’.
🚩🚩🚩 FAQ: if payment banks cannot give loans, then what do they do with deposit money? Ans. It is answered within the above table itself. Read properly. If you’re going to glance over this handout casually & carelessly like a WhatsApp message then handout cannot help you in the UPSC exam.
13.19.3 🐯🐯 � 🌎🌎🚫🚫🚗🚗🚗🚗 On-Tap Licenses for starting SFB (मन चाहे तब अज� डालो)
- RBI reviewed & found SFBs have achieved their priority sector targets and helped in financial inclusion. More competition and new players will help. (अ�धक ब�कों को अनुम�त देने से �धार् म� बढ़ोतरी �व�ीय समावेशन म� मदद)
- so 2019-June, RBI announced it’ll allow ‘On-Tap’ license for SFB soon. (i.e. no need to wait for notification unlike IAS exam, apply whenever you wish like a driving license)
Eligibility conditions to start SFB license ‘On Tap’: (Exact norms NOT IMP for IAS Exam)
- Indian persons/Indian companies with minimum “X” years experience in banking/finance.
- Existing NBFCs, MicroFinance, local area banks, Urban cooperative banks (UCB) and Payments Banks (with 5 years’ experience) may also apply for license.
- Examples of On-Tap SFB Applicants in 2020-21: VSoft Technologies, Akhil Kumar Gupta, and Dvara Kshetriya Gramin Financial Services, Centrum etc.
- RBI’s Shyamala Gopinath committee reviews/pass-rejects the applications.
13.19.4 🐯🐯 � 🌎🌎🚫🚫🚗🚗🚗🚗 Unity Small Finance Bank (SFB) gets license (2021)
⇒ 2021: RBI approved Unity Small Finance Bank, under ‘On-Tap’ licensing system.
