In­dia gets a new bank

The Pak Banker - - OPINION - Tamal Bandyopadhyay

Af­ter lit­tle more than a decade, a new pri­vate bank is born in In­di­aBand­han Bank Ltd. This is the first bank to come up in eastern In­dia af­ter In­de­pen­dence. A new bank is al­ways welcome as a large slice of In­dia's 1.2 bil­lion pop­u­la­tion does not have ac­cess to for­mal bank­ing ser­vices. The­o­ret­i­cally, the sce­nario changed af­ter the launch of the Prad­han Mantri Jan-Dhan Yo­gana in Au­gust 2014, which has en­rolled 175.7 mil­lion de­pos­i­tors and col­lected de­posits of Rs.22,394 crore, but the pro­ject is more about open­ing bank ac­counts than giv­ing loans.

Af­ter In­dia em­braced eco­nomic lib­er­al­iza­tion fol­low­ing a se­vere bal­ance of pay­ment cri­sis, the Re­serve Bank of In­dia (RBI) opened the doors for a set of new banks in Jan­uary 1993. It re­ceived 113 ap­pli­ca­tions, many from large in­dus­trial houses. Noted economist-bu­reau­crat Sharad Marathe, the first chair­man of the erst­while In­dus­trial De­vel­op­ment Bank of In­dia, re­viewed the ap­pli­ca­tions and nine new banks were set up and one co­op­er­a­tive bank was al­lowed to con­vert it­self into a com­mer­cial bank. Not ev­ery­one has sur­vived. For in­stance, Times Bank Ltd was merged with HDFC Bank Ltd; Global Trust Bank Ltd was forced to merge with Ori­en­tal Bank of Com­merce; and Bank of Punjab Ltd was ac­quired by Cen­tu­rion Bank Ltd to form Cen­tu­rion Bank of Punjab Ltd, which in turn was taken over by HDFC Bank.

In Jan­uary 2001, RBI is­sued guide­lines for the sec­ond set of new banks. A com­mit­tee headed by for­mer RBI gover­nor I.G. Pa­tel scru­ti­nized the ap­pli­ca­tions. Two li­cences were is­sued, in­clud­ing the con­ver­sion of a non-bank­ing fi­nan­cial com­pany into a bank-Ko­tak Mahin­dra Bank Ltd.

In the past, RBI's stated ob­jec­tive be­hind giv­ing li­cences had been to in­tro­duce com­peti- tion in the bank­ing sec­tor, largely dom­i­nated by state-owned banks. This time, its ob­jec­tive is to bring about greater fi­nan­cial in­clu­sion in a na­tion where only 35% of adults have ac­cess to for­mal bank­ing ser­vices, ac­cord­ing to a 2012 World Bank work­ing pa­per.

Three years af­ter for­mer fi­nance min­is­ter Pranab Mukherjee an­nounced in 2010 that a new set of banks would be set up, RBI re­leased the fi­nal guide­lines on li­cens­ing norms in Fe­bru­ary 2013 and ap­pli­ca­tions were re­ceived till 1 July 2013. A panel, headed by for­mer RBI gover­nor Bi­mal Jalan, sifted through the ap­pli­ca­tions. The can­di­dates el­i­gi­ble to ap­ply for a bank­ing li­cence needed to have a 10-year track record and they should never have been un­der the scan­ner of any reg­u­la­tor, en­force­ment or in­ves­tiga­tive agen­cies. Twenty-six com­pa­nies had ap­plied, but the Tata group later opted out. The list of se­ri­ous ap­pli­cants in­cluded cor­po­rate houses such as Aditya Birla Nuvo Ltd and Re­liance Cap­i­tal Ltd and fi­nan­cial in­ter­me­di­aries such as LIC Hous­ing Fi­nance Ltd and L&T Fi­nance Ltd.

In the past, when RBI opened doors for new banks, they were set up in the north, the south and the west, but not in the east. In­ci­den­tally, RBI was set up in Kolkata, but its head­quar­ters were shifted to Mum­bai in 1937. Among the first banks in In­dia was Bank of Hin­dus­tan, es­tab­lished in 1770 in Kolkata, then Cal­cutta, un­der Euro­pean man­age­ment. It was liq­ui­dated in the early 1830s. State Bank of In­dia, the na­tion's largest len­der, orig­i­nated as the Bank of Cal­cutta in June 1806. Cal­cutta was also the first port of call for ma­jor for­eign banks in In­dia.

Cur­rently, Kolkata houses three banks. Al­la­habad Bank, the old­est of the three, was set up in Al­la­habad in April 1865 by a group of Euro­peans. United Bank of In­dia has its ori­gin in United Bank of In­dia Ltd, formed in 1950 with the amal­ga­ma­tion of four banks. Uco Bank was set up af­ter the his­toric Quit In­dia move­ment in 1942. Their com­bined branch net­work was 7,735 in fis­cal 2014, less than 9% of the 39 listed banks' na­tion­wide branch net­work; they have a lit­tle over a 6% share of de­posits and less than 6% of loan as­sets.

The east and the north­east are the most un­der­banked re­gions in In­dia. Out of around 126,000 bank branches, the east ac­counts for 16%, and the north­east only 2.6%. West Ben­gal, the fourth largest state in In­dia by pop­u­la­tion, where Band­han Bank has its largest branch net­work, ac­counts for 5.62% of bank branches, 6.22% of de­posits, 4.67% of credit and for ev­ery Rs.100 the banks mo­bi­lize in this state, Rs.58 is given as loans. Band­han Bank will also have many branches in Bi­har-the third largest In­dian state by pop­u­la­tion, which ac­counts for 4.78% of the branch net­work, 2.44% of de­posits and 1.05% of credit, and where the credit-de­posit ra­tio is 33.26%. Bar­ring Odisha, As­sam and Ut­tarak­hand, all other states in the east ac­count for less than 1% of branches, de­posits and credit, and these branches of­fer loans to the ex­tent of one­fourth to one-third of the de­posits they mop up.

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