User talk:Meenakshi10/New Private Sector Banks of India

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In line with the liberalization policy of financial sector reforms of early 1900s, the Reserve Bank of India issued guidelines on January 22, 1993 (and subsequently revised guidelines in 2001) for licencing limited number of private players for entry into the banking sector. The private sector banks that came up after these guidelines were set are known as the New Private Sector Banks. [1] [2] Cite error: The <ref> tag has too many names (see the help page).
The Finance Minister of India in his budget speech of 2010-11 announced that the RBI was considering issuing licenses for entry of new banks in the private sector. Following this the RBI put up a discussion paper in August 2010 on this topic and subsequently released Draft guidelines for entry of new banks in the private sector in August 2011. The final guidelines are expected to be issued in the near future. This time Industrial Houses are being allowed to enter the banking sector through wholly-owned Non-Operative Holding Company (NOHC). [3] [4] Meenakshi10 (talk) 23:47, 12 October 2011 (UTC)[reply]

List of New Private Sector Banks[edit]

Presently, there are 7 New Private Sector Banks: Cite error: The <ref> tag has too many names (see the help page).

History[edit]

Following the guidelines issued by RBI in 1993, 10 new banks were given licenses to operate in India. 2 more banks came up after the guidelines were revised in 2001.
The first New Private Sector Bank that came up was Global Trust Bank, which was later amalgamated with Oriental Bank of Commerce (a public sector bank). [5] [6] HDFC became the first (still existing) to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector.
In 2005, Bank of Punjab was merged with Centurion Bank (both New Private Sector Banks) [7] and the resulting bank- Centurion Bank of Punjab was further merged withHDFC Bank in 2008. [8]

Guidelines[edit]

According to the RBI guidelines for entry of new banks in the private sector (revised guidelines, 2001), following are the requirements:Cite error: The <ref> tag has too many names (see the help page). :

Capital Requirement:[edit]

The initial minimum paid-up capital should be Rs.200 crore. This has to be raised to Rs.300 crore within 3 years of commencement of business. The overall capital structure of the proposed bank including the authorised capital has to be approved by the RBI.

Promoters’ Contribution:[edit]

Promoters’ contribution at any point of time should be a minimum of 40% of the paid-up capital of the bank. If the promoters’ contribution to initial capital is more than 40%, the excess stake must be diluted after 1 year of the bank’s operations. Except the promoters’ contribution, the initial capital can be raised through public issue or private placement. Of the additional capital brought in to raise the capital to Rs.300 crore, the promoters’ contribution should be atleast 40%. The rest of the fresh capital can be raised through public issue or private placement.

Lock in period:[edit]

Promoters’ contribution of 40% to initial capital shall be locked in for a period of 5 years from the date of licencing of the bank. While augmenting the capital to Rs.300 crore, the promoters’ contribution of 40% of the fresh capital brought in shall be locked in for a minimum period of 5 years from the date of receipt of capital by the bank.

NRI participation:[edit]

Maximum NRI participation allowed in the primary equity of the bank is 40%. In the case of a foreign banking company or finance company (including multilateral institutions) as a technical collaborator or a co-promoter, equity participation shall be restricted to 20 per cent within the above ceiling of 40%.

Restrictions on Promotion :[edit]

Large Industrial Houses cannot promote the new bank.
Participation by individual companies that have a direct or indirect connection with Large Industrial Houses shall be limited to a maximum of 10% in the equity of the new bank; subject to permission by the RBI. These companies must not have contolling interest in the new bank. The 10% limit is also applicable to inter- connected companies belonging to the concerned large industrial houses.

Nature of relationship with Promoters and investing companies :[edit]

Arms-length relationship has to be maintained between the new bank and business entities in the promoter group/individual companies mentioned above. Credit facilities must not be extended to the promoters and companies investing up to 10 per cent of the equity.

Conversion of NBFCs into private sector banks[edit]

An NBFC with a good track record and minimum net worth of Rs.200 crore in its latest balance sheet can apply for conversion into a bank. The net worth should be increased to Rs.300 crore within 3 years from the date of conversion.
Restriction on Promotion and control: Any large Industrial House should not have promoted the NBFC. Public authorities (local, state or central Governments) should not have owned/ controlled the NBFC.
Credit rating: Not less than AAA or its equivalent in the previous year.
NPAs: It should not have Net NPAs more than 5%.
In addition to these, the NBFC should have an spotless track record in compliance with RBI regulations, repayment of public deposits and no default of any kind should have been reported against it. Compliance with Capital Adequacy Ratio, lending to priority sector, promoters’ contribution, lock-in period for promoters’ stake, dilution of promoters’ stake beyond the minimum, NRI and foreign equity participation, arms length relationship, etc. as applicable to banks, will also be applicable to NBFCs on conversion to a bank.

Expansion[edit]

The number of offices(including branches) of New Private Sector Banks increased from 2016 in 2006 to 5213 in 2010. [9] — Preceding unsigned comment added by Meenakshi10 (talk • contribs) 18:53, 12 October 2011 (UTC)[reply]

Growth of offices of New Private Sector Banks in India
The number of employees increased from 91060 n 2006-07 to 127468 in 2009-10.[10]
Growth of number of employees of New Private Sector Banks in India.

Performance[11][edit]

Efficiency Ratios[edit]

Business per employee and Profit per employee have shown an overall increasing trend. Both these indicators showed dipped in 2008 which can mainly be attributed to decline in productivity of HDFC bank, Kotak Mahindra Bank and IndusInd Bank. HDFC bank's productivity may have come down due to its merger with Centurion Bank of Punjab in 2008.[12] [13] [14] — Preceding unsigned comment added by Meenakshi10 (talk • contribs) 22:23, 12 October 2011 (UTC)[reply]

Growth in Business per Employee
Growth in Profit per Employee

Profitability[edit]

The Net interest margin (NIM) of New Private Sector Banks increased from 3.54% in 2010 to 3.73% in 2011.

Return on Assets increased from 1.12% in 2008-09 to 1.38% in 2009-10. Return on Equity increased from 10.69% in 2008-09 to 11.87% in 2009-10. During the same period All Scheduled Commercial Banks showed an aggregate decline in return on assets and return on equity.[15]

Soundness Indicators[edit]

[15] [16] The Gross NPA of New Private Sector Banks is the second highest at 2.87%(2009-10) among All SCBs, after Foreign Banks. However Net NPA Ratio has been falling over the years.

Trends in Net NPA ratio

The Capital adequacy ratio for 2010 are:

  • BASEL I- 17.3%
  • BASEL II- 18%

Market Share(2010-11) [16][edit]

Investments- 14.2%
Deposits- 13.1%
Advances- 17.2%
Total Assets- 14.6% (2010) [17]
Meenakshi10 (talk) 21:43, 12 October 2011 (UTC)[reply]

References[edit]

  1. ^ RBI press release Jan 1993: [1]
  2. ^ The Hindu: [2]
  3. ^ livemint.com: [3]
  4. ^ Draft Guidelines: [4]
  5. ^ BBC News: [5]
  6. ^ The Times of India 15.8.2004 [6]
  7. ^ The Hindu Business line 27.7.2005 [7]
  8. ^ The Hindu: [8]
  9. ^ RBI publication-Offices of commercial banks:[9]
  10. ^ A profile of banks 2010-11 :[10]
  11. ^ Statistical Tables Relating to Banks of India [11]
  12. ^ A profile of banks 2010-11 :[12]
  13. ^ domain-b.com [13]
  14. ^ The Times of India 23.2.2008: [14]
  15. ^ a b Table IV.11 [15] Cite error: The named reference "RBI-Operation and Performance of Commercial Banks" was defined multiple times with different content (see the help page).
  16. ^ a b Pg 95-98 A Profile of Banks 2010-11: [16]
  17. ^ Liabilities and assets of scheduled commercial banks, RBI:[17]
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