THE MOMENT OF TRUTH FOR THE FIs
Article Abstract:
The Reserve Bank (RBI) of India has announced that leading financial institutions (FIs) like the Industrial Development Bank of India (IDBI), Industrial Finance Corp of India (IFCI) and ICICI will have to function either as banks or non banking finance companies (NBFCs). They have to become variants of either the State Bank of India or GE Capital. Currently, FIs function like banks in some ways and like NBFCs in other ways. There are both advantages and disadvantages for the FIs in choosing to become either a bank or NBFC. If an FI decided to become a bank, 25 percent of its deposits will be locked up in statutory liquidity ratio and 11 percent in cash reserve ratio. It will have to lend 40 percent of its loans to the priority sector and will have to operate at least one rural branch for every two urban branches. Among the benefits of becoming a bank are that it will have access to cheaper demand deposits. It will also have more flexibility in forex treasury operations as full fledged authorised dealers. Among the drawbacks in becoming a non-banking finance company (NBFC) are a higher capital adequacy ratio at 12 percent, ceilings on investments in land, buildings, shares or unlisted firms. About 12.5 percent of its deposits will be compulsorily locked up in government papers. However, if FIs opt to become NBFCs, they need not open rural branches like banks and also there will not be any priority sector or cash reserve ratio commitments. (uh)(vr)
Comment:
The Reserve Bank (RBI) of India has announced that leading financial institutions (FIs) like the Industrial Development Bank of India (IDBI), Industrial Finance Corp of India (IFCI) and ICICI will have to function either as banks or non banking finance companies (NBFCs).
Publication Name: BusinessWorld
Subject: Business, international
ISSN:
Year: 1999
User Contributions:
Comment about this article or add new information about this topic:
NO PLACE TO HIDE FOR OLD PRIVATE BANKS
Article Abstract:
The 25 old private sector banks are facing increasing competition from foreign banks who have begun operating in semi-urban and rural areas. These areas have been the traditional stronghold of old private sector banks. Many of these banks face the threat of takeover as the promoters hold very little stake in them. Aspiring bankers and the old management are locked in legal battles in many cases. Competition from the new private banks is the gravest threat to their existence. These banks have a strong capital base, small staff, modern technology and no bad loans. Their performance is also good. The net profit of the top 5 old private banks was about Rs260 crore in 1997-98. The net profit of the top 5 new banks was Rs317 crore. The non- performing assets of the old private banks as a percentage of total loans have increased from 4.51 percent in 1995-96 to 5.99 percent in 1996- 97. They are also unable to raise low-cost deposits. These banks have spent Rs22 crore on technology. Most of the private banks in India are likely to be merged with bigger ones once the Reserve Bank of India (RBI) permits it. (uh)
Comment:
India: Private sector banks are facing competition from foreign banks who have begun operating in semi-urban & rural areas
Publication Name: BusinessWorld
Subject: Business, international
ISSN:
Year: 1998
User Contributions:
Comment about this article or add new information about this topic:
- Abstracts: THE HIGH COST OF WRONG REFORM SBM TO OPEN 26 NEW BRANCHES
- Abstracts: THE UGAR SUGAR WORKS LTD. - NO SUGAR IN IT. HINDUSTAN MOTORS: AVOID NOW; BUY LATER
- Abstracts: ICRA,CRISIL BATTLE IT OUT FOR NEW BUSINESS. PIDILITE INDUSTRIES
- Abstracts: MITCHELL MADISON OFFERS $105,000 TO IIMian. Re CLOSES STRONGER TO $