Banking Current Affairs 2015

Bandhan, first micro finance company to start operation as a commercial bank

Bandhan Bank has become the first micro-finance company in India to start operation as full-fledged scheduled commercial bank.

The bank was inaugurated by Union Finance Minister Arun Jaitley in Kolkata, ushering in a new era in country’s banking sector to reach out to the unbanked population.

Key facts

  • Bandhan Bank has begun its operations after it had received an in-principle approval from the Reserve Bank of India in April 2014 and final nod on June, 2015.
  • It was established in 2001 as a not-for-profit micro-finance enterprise by Chandra Shekhar Ghosh with an aim to alleviate poverty by empowering women. Later in 2006, it had transformed itself into a non-banking finance company (NBFC).
  • Bandhan Bank will now primarily cater to the unorganized sector in India like daily wage earners and women running small businesses.
  • Headquarters: It has two divisions viz. micro banking and general banking.
  • As a bank, it will also offer services like savings, remittance and insurance services. Presently, it has 501 branches, 2022 service centres and 50 ATMs across 24 states.
  • Over 71 per cent of its branches are in rural India including 35 per cent in unbanked rural pockets. State-wise, West Bengal has highest 220 branches, followed by Bihar (67), Assam (60), Maharashtra (21), Uttar Pradesh and Tripura (20 each) and Jharkhand (15).

It should be noted that prior to starting operation as commercial bank, Bandhan was World’s largest Non-Deposit-accepting Microfinance Institution (MFI) and India’s largest microfinance company.

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R Gandhi committee of RBI recommends conversion of UCBs into regular banks

A Reserve Bank of India (RBI) committee has recommended conversion of Urban Cooperative Banks (UCBs) with business size of 20,000 crore rupees or more into regular banks.

This recommendation was given by the High Powered Committee on UCBs headed by RBI Deputy Governor R Gandhi in its report.

Recommendations

  • Conversion of UCBs will not be compulsory for large UCBs and they can continue the way they operate currently in terms of asset size and balance sheet.
  • Large UCBs can convert themselves into commercial banks in order to minimise the systemic risk.
  • For conversion, smaller UCBs with business size of less than 20,000 crore rupees who are willing to convert to Small Finance Banks can apply to the RBI.
  • Licenses for conversion to operate as UCBs will be issued to well-managed and financially sound cooperative credit societies having a minimum track record of 5-years.
  • With the conversion, UCBs will be allowed to grow and proliferate further to meet the objective of financial inclusion.

Background

  • The High Powered Committee on UCBs was constituted in January 2015 on the recommendation Malegam Committee (Expert Committee on Licensing of New UCBs).
  • Terms and reference of the committee was to examine and recommend on issues of conversion of UCBs into commercial banks. The committee work was to examine permissible business lines and appropriate size of UCBs for conversion purpose.

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Government Issues Norms for Selection of CEOs and MDs of Smaller PSU Banks

After the irk raised due to appointment of two private sector bankers to head Bank of Baroda and Canara Bank the government has issued norms for selection of MDs and CEOs in Mid and Small Public Sector Banks (PSBs) on 20 August 2015.

The guideline was issued after the approval by the Appointments Committee of Cabinet (ACC) for selection of MDs & CEOs in Public Sector Banks (PSBs) other than five large Public Sector Banks.

As per the guidelines:

  • The top post in the PSBs would be filled from the existing pool of executive directors (EDs) or deputy managing directors (DMDs) in state-owned banks with a remaining service period of 2 years.
  • Henceforth the private sector executives would not be the part of the selection process of top management in the public sector banking space.
  • The DMDs of IDBI Bank, the EDs of nationalised banks and MDs of associate banks of SBI who have one year of service experience as ED/DMD/MD and who have two years of service left are entitled for post of MD & CEO.
  • Other than five large PSBs, for the remaining banks hiring will be conducted from the pool of executive directors of the public sector banks itself.
  • For the five large banks viz. Punjab National Bank, Bank of Baroda, Bank of India,Canara Bank and IDBI Bank there will be a separate procedure for selection

Selection Methodology:

  • The section will be done by the interaction of the candidates with three panels of the sub-committee of the Appointments Board, where the candidates will be rated out of 100 marks.
  • 50 marks to be awarded for Annual Performance Appraisal Reports (APARs) of five years and 50 marks assigned on the basis of performance during interaction with the sub-committee.

Eligibility criteria for executive directors of the nationalized banks:

For the post of executive director the General Managers of nationalized banks and CGMs of associate banks of SBI who have risen from the associate banks service who have two years of experience of service are eligible.

Note: There are total 27 PSBs in India – 19 Nationalised banks + 6 State bank group (SBI + 5 associates) + 1 IDBI bank (Other Public Sector-Indian Bank) = 26 PSBs + 1 Bhartiya Mahila Bank.

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