Differential Banks

Question 1

Differential Banks

Answer 1

The banks which could be differeratiated on the account of capital requirement, scope of activities and serve the needs of a certain demographic segment of the population are called as Diffenrentiated or Niche Banks.

The Differentiated Bank was mooted by Nachiket Mor Committee 2014, for financial Inclusion.

It can be classified as Payment Banks, Small Finance Banks, Regional Rural Banks, Local Area Banks, Wholesale and Long-Term Finance (WLTF) banks etc.

Question 2

Wholesale and Long-Term Finance (WLTF) banks

Answer 2

Wholesale and long-term finance banks focused primarily on lending to infrastructure sector and small, medium and corporate businesses.

Wholesale and long term finance bank, Proposed by RBI
Entry Capital: 1000 crores
Can’t accept deposits less than 10 crores
Can give loans only to large corporates and Infrastructure project

Question 3

Payment Banks vs Small Finance Banks (SFB)

Answer 3

PB:
Prepaid card issuers, telecom companies, NBFCs, business correspondent, supermarket chains, corporate, real estate sector Co-op & PSUs
SFB:
Individuals professionals with 10 years experience in finance, NBFCs, microfinance cos, local area banks.

Question 4

Payment Banks vs Small Finance Banks (SFB): What they must do

Answer 4

PB:

Have a minimum capital of Rs 100cr.
Maintain 75% of deposits in govt bonds.
Maintain 25% of deposits in other banks,
Have at least 26% investment by Indians
Get listed if net worth crosses Rs 500 Cr
Have 25% of branches in onbanked areas 
Be fully networks and technology driven
Have Rs. 1 lakh cap for deposits in one a/c

SFB:

Have a minimun capital of 200 Cr
Extend 75% of loans to priority sector
Have 25% of branches in unbanked areas.
Maintain reserve requirements. 
Cap loans to individuals and groups at 10% and 15% of net worth
Have a business correspondent

Question 5

Payment Banks vs Small Finance Banks (SFB): What they can do

Answer 5

PB:

Offer internet banking
Sell mutual funds, insurance pensions.
Offer bill payment service for customers
Have ATMs and business correspondents (BC).
Can function as BC of another bank

SFB:

Sell forex to customers
Sell mutual funds, insurance pensions
Can convert into a full-fledged bank
Expand across the country

Question 6

Payment Banks vs Small Finance Banks (SFB): What they can not do

Answer 6

PB:
Offer credit cards.
Extend loans.
Handle cross- border remittances.
Accept NRI Deposits.

SFB:
Extend large loans
Float subsidiaries
Cannot deal in sophisticated financial products.

Question 7

India Post Paymnets Bank (IPPB)

Answer 7

Registered as Public Limited Company products.

100% owned by Dept of Posts, under Min of Communication

Issues:

1. Investment required to train postmen
2. High service fee of 15-35

Question 8

Advantages of India Post Paymnets Bank (IPPB)

Answer 8

1. Much wider reach: 1.5 lakh post office branches compared to 50K bank rural branches
2. Financial inclusion:
3. Transfer of subsidies

Question 9

India Post Paymnets Bank (IPPB) Issues

Answer 9

1. Investment required to train postmen
2. High service fee of 15-35
3. Revenue model of IPPB is solely based on chargin transaction fee. Unlike traditional banks, there is no minimum balance requirements and no loan.
4. Lack of Infra: Hard (Internet connectivity), Soft (Financial Literacy and Financial Inclusion)

Recent Development:

1. Will convert itself into SFB soon

Question 10

IPPB Types

Answer 10

Types of Bank Accounts:

1. Safal Sugam, Saral

Will tie up with Insurance companies to sell insurance

Question 11

Regional Rural Banks RRB

Answer 11

Based on the recommendation of Narasimham Committee in 1970s

Set up under RRB Act, 1976

Regulated by NABARD and RBI

Shareholding Pattern: Central Govt: 50%, State: 15%, Sponsor Bank: 35%

PSL: 75%

Question 12

Local Area Banks

Answer 12

Based on Budget of 1996 by MMS (Manmohan Singh)

They are non-schedule banks. Set up under BR Act

Currently they are 3 in number

Regulator: Only RBI

Question 13

Banks Reforms: BBB

Answer 13

Banks board bureau
Non constitutional, non Statutory
Recommends top officials for financia institutions
Appointed by ministry of finance

Question 14

Banks Reforms: EASE

Answer 14

Enhanced access and service excellence
Released by MIn of Fin in 2018
EASE index by IBA and BCG

6 pillars to make PSB more responsive and responsible:

1) Customer responsiveness
2) Responsible banking
3) Credit off take
4) PSBs as udyami mitra
5) Deepening financial inclusion and digitalization
6) Developing personnel for brand PSB (DR IMCR)