Opening a Private Bank: Not an Uphill Battle Anymore

Are you planning to open a bank?

But are you afraid of falling into the soup of various rules, regulations, and guidelines by RBI? Are you getting intimated by the complex procedure of opening a bank? Worry no more! We are here to save you from this quandary. Here you will find everything you need to know and keep in mind while opening your own bank!

Key Points Answered

1. How to start a private bank?
2. Facilities to be provided by the bank.
3. Position of private banks in India.
4. Ease of banking with technology.
5. Conclusion.

HOW TO START A PRIVATE BANK?

Private Banks are a subdivision of commercial banks but unlike public sector banks; the main motive of the former is to earn profits through this business. Unlike public sector banks whose shares are held by government or RBI, private bank’s major shares are held by individuals or private entities.

To open a private bank in India, one needs to meet a truckload of guidelines and regulations set by RBI. Below we have mentioned the requirements one needs to meet:

• You need to open a company, specifically, an NBFC (non-banking financial company) under the company’s act 2013 and your NBFC must have experience of at least 10years.
• The NBFC must make sure that it must not be promoted by local/state or central government or by public authorities.
• The NBFC must acquire a good credit rating and nothing less than AAA rating in the previous year.
• The NBFC is expected to have an impeccable past record with no defaults in repayment and must be in compliance with rules and regulations of RBI.
• The company must have a minimum worth of Rs. 200cr. to start with, which will later increase to Rs. 300cr three years after the company gets transformed into a private bank. In other words, the company must have a minimum of Rs. 500cr capital to start a private bank.
• You need to have promoters for your bank with clean past records and they should own only 40% of bank and not more than that, or else they have to bring it down to 40% in five years.
• For NRIs, the participation is also extended up to 40% of the bank.
• Once these requirements are met by the NBFC, it is finally turned into a private bank.

This new private bank will still need to meet some levels to be rightly called a commercial private bank. The bank will have to continue its operations of lending and accepting deposits smoothly.

It must make sure it’s 25% branches are in non-urban areas and 40% of lending goes to priority sectors like agriculture, education and self-help groups. When all of these requirements and duties are met, then the bank is called a private bank under BANKING REGULATIONS ACT, 1949 and RESERVE BANK OF INDIA ACT, 1934.

FACILITIES PROVIDED BY THE BANK

Now that you have opened your own private bank you must know the facilities you are expected to provide to your clients in order to gain profits and goodwill among them. Other than the common banking activities of lending, accepting deposits, consultancy, ATM services, foreign currency exchange and many more; banks also need to:

• Act as a dedicated team for the client and understand their situation as a wealth manager and also a banker.
• Connect the clients with specialists. Bankers act as the standard-bearer for its clients and it must provide them with specialists like estate advisors, tax attorneys, etc.
• Offer perks and freebies. This will act as a twofer. First it will attract more clients and customers, second, it will be beneficial for the clients as these perks and offers include fewer interest rates or higher annual percentage on saving accounts.

POSITION OF PRIVATE BANK IN INDIA

In recent years, India has seen major changes in the banking sector. Previously, the banking system in India was stunted and recent reforms and policies have ameliorated it.  The signs of pacing down bad loans formations have become more prominent. Private Banks have started merging which is leading to the achievement of economies of scale and elimination of duplication.

Having said that, the Indian banking system had loaned over 10% as of March 2018 which subsequently rose from March 2014, because of state-owned lenders who owned 2/3^rd of Indian banking.

However, bankers and economists suggest that the strong treasury profits by the year-end may start showing better figures. The recent years have proved to be the best time for opening a private bank as the economic fundamentals are stronger than the last decades. The regulatory framework is less stringent. The technological transformation is getting accessible, implementable, economical and powerful than it was ever before.

EASE OF BANKING WITH TECHNOLOGY

If you are going to open a private bank and wondering how the hodgepodge of systems, tools and banking jargon is going to get managed?

Technological advancement has made this task easier for you. Starting from scratch to every expanding horizon in banking, technology will play its role and make it easier for running the business and keeping a track of all the data and numbers.

Use of AI and robotic process automation is rapidly taking place in the banking system enabling efficient insights on operations and clients. Banking has eschewed the traditional methods and introduced core system modernization and digital transformation to run, grow, secure and expand in the competitive world of banking.

CONCLUSION

The banking system in India has seen its part of crests and troughs in the past few decades. 2019 is predicted to be a great year for the banking industry, nonetheless, banks must not get complacent as the economy and the credit cycle is bound to turn sooner or later. As a word of caution, one must invest wisely and trail changes with conviction.

The process of opening a bank may seem tasking, but once done with honesty and transparency it will help the banker and RBI in the long run. One must specifically make sure who he is making a promoter and surely check his past record as having one with a shady past record may affect the goodwill of the bank.

The aim of opening a bank must not be only for earning profits but also to serve the society and less privileged. As a banker, you should make sure that your banking services are approachable and helpful for your clients.