How to start a bank in India

How To Start A Private Bank In India – New Regulations of RBI

The RBI will allow banks to “tap” into the private sector. This means that if you qualify, you can apply for a license - much like a driver's license - and get one. The previous model was: You waited until the RBI told you that people want bids for licenses. This wait can be up to 10 years. Then you applied and you waited, usually for two or three years. You were then told that your nails are dirty and please clean and reapply them. And then you died and no one remembered you for it.

Clearly, the new process would be less barbaric. These are the draft guidelines, released by the RBI today.

How To Start A Private Bank In India – New Regulations of RBI
How to start a bank in India


What do you need?

  • NBFCs that are controlled (not owned) by resident Indians who have a track record of 10 years of success
  • People in the field of finance/banking with 10 years of experience (Hey, I might qualify!)
  • Existing private entities with a successful history of 10 years, where they own more than 000 5 billion. The number of assets, then more than 60% of the assets and income should come from the financial domain. (Avoid creating banks owned by industrialists)
  • Preachers should be “fit and proper”. There is no willful defaulter, Jignesh Shah, etc.
  • Capital Requirement: Rs. 2,000. 500 crore - and continued net worth. 500 cr at least.
  • Promoters should own at least 40% of the bank, and if they own more, they should reduce it to 40% in five years.
  • No other bank can have more than 10% suffrage.

What can a bank do? 

Control trucks must be filled. Banks can take orrow from depositors and lend and spread to orrow borrowers. They can access the RBI repo window, all inter-bank transaction windows and borrow directly overnight for RBI liquidity. They can provide check payment, NEFT, IMPS and other such modes. They can offer corporate accounts, credit cards, forex services and business.


However, the requirements of a bank regulator are to be met as:


  • Meet priority sector nding requirements
  • To hold about 1/5 of all deposits in government bonds
  • Maintain the capital ratio at the basal level
  • Reporting all activities to RBI - More than 100 reports are submitted regularly
  • Ensuring financial inclusion - from geography to low income etc.
  • Keep rates transparent and adhere to MCLR process
  • And much more.

Should you apply to open a Bank?

Why not? It is duty-free and most importantly, you must learn from the process you need to apply. About 500 crore rupees are lying. "On tap" doesn't mean it flows like beer - you have to show that you can charge the cover first.


How does this change life for banks?

This ultimately means that banking will no longer be limited to the top few names you hear. But to get them out of business, new banks have to eat their franchise and make it technically easier for banks to migrate. They have to pay lower prices, take higher rates, and narrow margins.

Banking is going to be tougher, but what it will do is ensure that “bad banks” can be replaced by newer, smarter banks that don’t have “NPA baggage” that would otherwise lead to a zombie banking system. Hopefully, the next breed of banks will be more responsive and keep prices low for a long time.

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