DEPARTMENT OF TECHNICAL

EDUCATION ANDHRA PRADESH

Name : P. Samba Murthy,
Designation : Head of Department

Branch : D.C.C.P.
Institute : S.R.R.S. Govt. Polytechnic,
Sircilla, Karimnagar District
Year/Semester : V Semester
Subject : Banking – I
Subject Code : CCP- 504(B)
Topic : Indian Banking Industry- Growth
Duration : 50 Minutes
Sub-Topic : Definition of Private Banks and
its Features
Teaching Aids : PPTCCP504(B).26 1
Objectives

On the completion of this period , you would be

able to:
Understand the features of Private Banks.

CCP504(B).26 2
 Define Privatization.

 Explain the importance of Privatization.

CCP504(B).26 3
Recap
 So far we have discussed with regard to definition
of Private banks and its importance in our Country.

 Now let us know the features of Private Banks,

setting up private bank in detail.

CCP504(B).26 4
Private banks –Guidelines

 Under the financial sector reforms process, the

RBI has announced features/ guidelines for setting
up of Private Banks as Public Limited Companies.

CCP504(B).26 5
Private banks - Guidelines

 The bank in the private Sector should be

financially viable.

 They should avoid short comings, such as , unfair

reception and Concentration of Credit; Cross-
Holdings with Industrial Groups etc.,

CCP504(B).26 6
Private bank- Guidelines

 They will be required to observe priority sector

lending targets as applicable to other domestic
banks.

 In the direction of Privatisation, the Government has

taken various measures.

CCP504(B).26 7
Private bank - Guidelines

 The Private Sector has been allowed to set up a

banks, Mutual Funds, Money Market Mutual
Funds, Insurance Companies etc.,

 Public Sector are permitted Diversified ownership

by law subject to 51 percent Holding of
Government/RBI.

CCP504(B).26 8
Entry of Private Sector Banks

The Reserve Bank further announced features /

Guidelines in January, 1993 for starting of Private
Sector Banks. They are:
 They must be registered as Public Limited
Companies under Indian Companies Act ,1956.

CCP504(B).26 9
Private banks – Guidelines

 The Reserve Bank has the right to issue license

and enter them into the Second Schedule of R.B.I
Act.
 Those Banks which intend to establish main office
in Centers where no bank is having such office will
be preferred.

CCP504(B).26 10
Private Bank - Guidelines

 The voting right of Share Holder shall not exceed

10 percent.

 A person who is a Director of a bank cannot be the

Director of the new bank.

CCP504(B).26 11
Private bank - Guidelines

 The Paid up Capital shall not be less than Rs.200

crore.
 It shall be raised to Rs.300 crores within three
years after the commencement of Business.
 Promoter’s share shall not be less than 40
percent.

CCP504(B).26 12
Private bank - Guidelines

 The shares must be listed in the Stock market.

 All the rules and regulations in the R.B.I Act,1934
and Banking Regulation Act, 1949 are applicable
to these Banks.
 There are at Present 31 banks in the Private
Sector -23 old and 8 new banks.

CCP504(B).26 13
Private Sector Commercial Banks

 Now, relatively small Scheduled Commercial

banks and 10 newly established Private Banks
with a network of 6,624 branches are operating in
the private sector.
 There is tremendous increase in terms of
branches and also the business done by the
private banks.

CCP504(B).26 14
Private Sector Commercial Banks

 Most of the old Private Sector banks are much

smaller than nationalized banks and thus their role
in the Financial System of the Country is just
marginal.

CCP504(B).26 15
Private Sector Commercial Banks

 Keeping in the view the competitive efficiency,

setting up of new private Sector banks is being
encouraged.
 For the commercial banks in the Private Sector,
there was a time bound programme for merger or
amalgamation of those which have not shown
good performance.

CCP504(B).26 16
Private Sector Commercial Banks

 These Private Sector Banks( Both Old and New)

account for Less than 15 percent of both Bank
Deposits and Aggregate Advances.

 In 2005-2006 new Private Sector Banks accounted

for 15.1 per cent of total banking assets.

CCP504(B).26 17
Promoting Competition

 Until 1991 there was a little competition in the

banking Sector.

 The Public Sector Banks dominating the banking

industry in terms of size of assets, acted as
Monolith.

CCP504(B).26 18
Promoting Competition
 The Government has recognized the need to make
banking industry more competitive.

 It has made certain policy changes such as

deregulation of Interest Rates and Dilution of
Consortium Lending Requirements.

CCP504(B).26 19
Promoting Competition
 Moreover banking has been opened up to the
private Sector.
 Response to this Policy has been quite
encouraging.
 Ten new private sector banks have been started
functioning out of thirteen in principle approval
given for setting up new banks in the Private
Sector.

CCP504(B).26 20
Promoting Competition
 The R.B.I has pursued a restrictive policy as
regard allowing the new Banks to open
branches.
 Vijay Joshi and I.M.D Little are critical of this
Policy of the R.B.I.
 They are in favour of allowing the new banks
(which satisfies the initial entry restrictions) to
expand rapidly to increase competition of
existing banks.
CCP504(B).26 21
Summary

 The Reserve Bank of India announced certain

guidelines for setting up Private Banks as Public
Limited Companies under certain conditions.
 Also the Government has taken various measures
while doing Privatisation of banks.

CCP504(B).26 22
Frequently Asked Questions

1. Briefly Explain the Feature of Private banks.

4. What are Guidelines for setting up of Private

banks?

CCP504(B).26 23
Quiz
1. The Private banks should Be Registered Under
a) Partnership Act
b) Indian Companies Act
c) Negotiable Instruments Act

CCP504(B).26 24
Quiz
1) What is the Paid up Capital to start Private banks
a) 10 crores
b) 100 Crores
c) 300 Crores
d) 1000 crores

CCP504(B).26 25