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Recap 2013: A landmark year for Indian banking

31 December, 2013

The new chief of Indian central bank Raghuram Rajan stole much of the limelight in the banking space in the last quarter of the year, but 2013 goes down as a landmark year for the sector on its own. Be it the new window to let in corporate houses as new private lenders, permitting foreign banks to enter India in a big way and even take over domestic lenders, the new all-women bank and more.

Here’s a look back at some of the major developments in the banking sector this year which also sets the stage for more important role play for the backbone of Indian financial services sector.

New banking licences

The RBI threw the ring open for both private and public sector entities as well as non-banking finance companies to enter into banking business with the release of the much-awaited final guidelines on new bank licences. This allows corporate houses to set up banks in the country decades after the nationalisation drive shut off such businesses from controlling people’s money for further lending.

RBI received as many as 27 applications for bank licences from various business houses, microlenders and others. Two groups have withdrawn their application including Tatas and Videocon but that still leaves around 25 firms up for grabbing around half a dozen licences, which are expected to be issued in January.

Green signal to foreign banks 

Foreign commercial banks are bit players in the Indian economy with only a handful of any reasonable size to talk about. But this could change. The Indian central bank has liberalised norms for entry of foreign banks, allowing them to buy domestic private sector banks as well as easier rollout for those creating their wholly-owned local subsidiaries in the country, heralding a new era of competition in the sector.

RBI said it will treat foreign banks operating in the country on nearly equal terms with local lenders if they move to a wholly owned subsidiary structure, as it seeks to bolster its regulatory powers in the wake of the global financial crisis. Currently foreign banks in India with substantial networks – a category including Citigroup, HSBC, and Standard Chartered – operate as branches, not subsidiaries, a distinction which crucially affects their regulatory framework. 

First woman chairperson of SBI; new all-women bank 

Arundhati Bhattacharya took charge as the chief of State Bank of India for next three years, becoming the first woman in the history to head the country’s largest lender. Prior to her appointment as chairperson of SBI, Arundhati was chief financial officer and managing director of the state-run bank. She also joined the growing list of women who head top commercial banks in India. 

India also got its first all-women bank, which is a part of government’s plans towards gender empowerment. The first Bharatiya Mahila Bank was opened in Mumbai and will have seven branches across the big cities to start with. 

Cobrapost money laundering revelation 

The one development which rocked the banking sector it was the Cobrapost revelation in which major private sector banks were accused of indulging in money laundering practices. Online magazine Cobrapost revealed that undercover investigation found money laundering rackets across branches of private sector banks—ICICI Bank, HDFC Bank and Axis Bank. 

Following the expose, RBI initiated a probe carried out a scrutiny of books of accounts, internal control, compliance systems and processes of several public and private sector banks at their offices. It also imposed monetary penalties on 22 banks, including State Bank of India, Bank of Baroda, Dhanlaxmi Bank Ltd, among others, after it found them violating norms for customer identification and anti-money laundering. 

Other developments 

Raghuram Rajan, former International Monetary Fund chief economist, took over as new RBI governor at a time when the Indian economy was experiencing its worst crisis in over two decades. Rajan took an array of several short-term steps to revive falling rupee and bring down current account deficit. He has gone ahead surprising the market first with a hawkish tone to control inflation by reversing the recent cuts in interest rates only to hold an anticipated rate hike early this month when much of the street was expecting an increase.

Big year ahead 

The new year is expected to begin with crackers as the new banking licences are slated to be issued in the next few weeks. After the upcoming general elections the country should see more activity from foreign banks in light of easier norms issued by RBI and more clarity over governance and policy stance. RBI is also expected to come up with new and flexible guidelines on M&A among banks, which will lead to consolidation in the sector with the creation of large and stronger banks via mergers. Also, the central bank is expected to issue final guidelines to address growing pile of loans in banking system which is seen as a time bomb for the financial system. 

(Edited by Joby Puthuparampil Johnson)


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Recap 2013: A landmark year for Indian banking

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