Saturday, 18 February 2017

Financial Organisations in India Part 1 | Banking

Financial Organisations in India


Banks Board Bureau (BBB)

The setting up of Banks Board Bureau (BBB) was announced by the union government in August 2015.

What is BBB?

BBB will recommend appointment of directors in Public Sector Banks (PSBs) and advice on ways of raising funds and dealing with issues of stressed assets.
Formation of BBB is the first step towards a holding company structure for state-run banks. By holding company, it is meant that the bank and its directors will be able to control other firms (called subsidiaries). The holding company, in turn, can borrow funds from the market to raise huge amounts of capital which can be infused into banks. It will enable banks to grow and lend more to revive the economy.

Some Facts about Banks Board Bureau:

  • A search committee, which includes the Reserve Bank of India governor, will shortlist six candidates and a chairman for the part-time body which will take over the selection process for public sector banks and also discuss their business strategies
  • Besides RBI governor, the search committee will include secretary, financial services and secretary, Department of Personnel and Training.
  • The six-member panel will have three government officials and three experts, of which two will be from banking sector.
  • The BBB would replace the existing appointments board for PSBs.
  • The primary task of BBB will be to select top officials for PSBs
  • Besides this task, the BBB will also be a link between the government and banks and will be engaged with banks to evolve strategies for them.
  • The BBB will become operational on April 1, 2016.
The first chairman of Banks Board Bureau selected is Vinod Rai who is former CAG (Comptroller & Auditor General of India).

Bank Note Paper Mill India Private Limited

Bank Note Paper Mill India Private Limited established on October 13, 2010 by Registrar of Companies, Bangalore under the Companies Act 1956 with its registered and Corporate Office at Bangalore. The Registered and Corporate shifted to Mysore from Bangalore with effect from 1st December 2015.

This company is a Joint Venture between Security Printing & Minting Corporation of India Limited (SPMCIL), a wholly owned Public Sector Undertaking of Government of India under Ministry of Finance and Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL), a wholly owned subsidiary of Reserve Bank of India (RBI).
Overall affairs of the company are managed/governed by the Board of Directors headed by a non-executive Chairman. Day to day management is entrusted to Managing Director, who is a whole time director.
The company at present has put in place a committed project team constituting of a few Senior, Middle and Junior level executives who are solely dedicated for implementation of the project.
The paper mill commenced its production with effect from 9th November, 2015 – having installed 2 production lines with an installed capacity of 12000 MT per year. Currently, the production stabilization is in progress and it is scheduled to commence its commercial production before 31st December, 2015 on line-I and by end February, 2016 – line-II.

Credit Information Bureau (India) Limited or CIBIL

Credit Information Bureau (India) Limited or CIBIL is India’s first Credit Information Company (CIC) founded in August 2000. The company plays a critical role in India’s financial system. CIBIL’s corporate office is in Mumbai, Maharashtra.
Whether it is to help loan providers manage their business or help consumers secure credit faster and at better terms, the use of CIBIL’s products have led to a massive change in the way the credit life cycle is managed by both loan providers and consumers.


Role of CIBIL to loan providers and consumers:

CIBIL collects the data from member institutions (banks and other lenders) and maintains records of a customer’s (individual or any business) payments pertaining to loans and credit cards. This information is then used to create Credit Information Reports (CIR) and credit scores. These credit scores and reports can be used by the lenders to evaluate and approve loan applications.
The CIBIL scores ranges from 300 to 900. A greater CIBIL score is a good score for the evaluation of loans. So if a person pays his dues in a timely manner, he obtains a good CIBIL score. Now when this customer again comes to ask for a loan, his CIBIL score will be checked and if it is good he will have faster loan approval. Loan providers prefer credit scores which are greater than 750.

The factors that effect an individual’s CIBIL score:

  • Multiple Loans and Credit Cards: Multiple secured and unsecured loans and multiple credit cards affect the CIBIL score because they indicate high debt a customer already carrying.
  • Delayed payments: Delayed payments and non-payments may bring down the credit score.
  • Increased credit limit: Requesting to increase the credit limit of credit card can also affect credit score because it indicates that the customer totally relies on credit cards.
  • Not tracking your credit report: Sometimes the credit report may contain wrong information due to any faults by the lenders, so one must keep on tracking their reports.
If a customer wants to know his Credit Score and Report, he can apply with the CIBIL by filling an application form giving your complete details and paying Rs 500. If the information is found authentic, the customer can access his Credit Score and also the Credit Score and Report is emailed.

Credit rating agency

credit rating agency is a company which rates the debtors on the basis of their ability to pay back the debt in timely manner. They rate large scale borrowers, whether companies or governments.
There are three big credit rating agencies in the world which are Standard and Poor’s (S&P), Moody’s and Fitch Ratings.
There are mainly 4 credit rating agencies in India which are

Credit Rating and Information Services of India Limited (CRISIL)

  • It is India’s first credit rating agency which was incorporated and promoted by the erstwhile ICICI Ltd, along with UTI and other financial institutions in 1987.
  • After 1 year, i.e. in 1988 it commenced its operations.
  • It has its head office in Mumbai.
  • It is India’s foremost provider of ratings, data and research, analytics and solutions, with a strong track record of growth and innovation.
  • It delivers independent opinions and efficient solutions.
  • CRISIL’s businesses operate from 8 countries including USA, Argentina, Poland, UK, India, China, Hong Kong and Singapore.
  • CRISIL’s majority shareholder is Standard & Poor’s.
  • It also works with governments and policy-makers in India and other emerging markets in the infrastructure domain.


Investment Information and Credit rating agency (ICRA)

  • The second credit rating agency incorporated in India was ICRA in 1991.
  • It was set up by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency.
  • It is a public limited company.
  • It has its head office in New Delhi.
  • ICRA’s majority shareholder is Moody’s.

Credit Analysis & Research Ltd. (CARE)

  • The next credit rating agency to be set up was CARE in 1993.
  • It is the second-largest credit rating agency in India.
  • It has its head office in Mumbai.
  • CARE Ratings is one of the 5 partners of an international rating agency called ARC Ratings.


  • It is a private sector agency set up by Onida Finance.
  • It has its head office in Gurgaon.
  • It provides ratings, risk assessment and analytical solutions to Individuals, MSMEs and Corporates.
  • It is one of only 7 agencies licensed by NSIC (National Small Industries Corporation) to rate SMEs.
  • They have Pan India Presence with offices over 125 locations.
Apart from these credit rating agencies, there are three more credit rating agencies which are also registered with SEBI. These are Fitch Ratings India Private Ltd., Brickwork Ratings India Private Limited, SME Rating Agency of India Ltd. (SMERA).


  • Out of four credit rating agencies, CRISIL, ICRA, CARE and ONICRA, ONICRA is a private sector agency, all others are public sector companies.
  • There are 6 credit rating agencies which are registered with SEBI. These are CRISIL, ICRA, CARE, Fitch India, Brickwork Ratings, and SMERA.

Micro Units Development and Refinance Agency Bank (MUDRA Bank)

Micro Units Development and Refinance Agency Bank (MUDRA Bank) was set up as a public sector financial institution on 8 April 2015 under Pradhan Mantri MUDRA Yojana (PMMY). It is set up to provide loans at low rates to Micro-Finance Institutions (MFIs) and Non-Banking Financial Companies (NBFCs) which then provide credit to MSMEs.

Formation of MUDRA Bank:

  • The Non-Corporate Small Business Sector (NCSBS) forms important part of Indian Economy.
  • They feed large local and international value chains as well as domestic consumer markets as suppliers, manufacturers, contractors, distributors, retailers and service providers.
  • But the NCSBS have a little growth due to the lack of financial support by the banks.
  • Most NCSBS operates as unregistered enterprises. Because of this they do not maintain their proper book of transactions and thus are not covered under taxation areas. And this is the reason that the banks hesitate to provide loans to these NCSBS.
  • This became the genesis of MUDRA Bank which will develop and refinance all MFIs.


Three categories have been identified in which the loans will be disbursed by the MUDRA Bank. These are:

  • Shishu: Under this, loans up to Rs 50,000 will be provided.
  • Kishore: Under this, loans up to Rs 5 lakh will be provided.
  • Tarun: Under this, loans up to Rs 10 lakh will be provided.
Government has decided to provide an additional fund of Rs 1 trillion to the market and will be allocated as 40% to Shishu, 35% to Kishore, and 25% to Tarun.

Roles and Responsibilities of MUDRA:

  • Laying down policy guidelines for micro enterprise financing business.
  • Registration, supervision and rating of MFI entities.
  • Guaranteeing the loan/credit to the MSMEs.
  • Ensure proper client protection principles and methods of recovery.
  • Supporting development & promotional activities in the sector
  • Creating a good architecture of Last Mile Credit Delivery to micro businesses under PMMY.

Some important facts:

  • MUDRA bank is not a physical bank.
  • Eligible entities can apply for MUDRA Bank loan under PMMY in NBFCs, MFIs, Rural Banks, District Banks, Nationalize Banks, Private Banks, Primary Lending Institutions and other intermediaries.
  • Any person who is eligible and having the need of loan of up to Rs 10 lakhs can approach for loans under PMMY
  • It will not refinance agriculture sector under PMMY but the traders of vegetables & fruits are covered under MUDRA Bank Schemes.
  • The bank is set up as a subsidiary of the Small Industries Development Bank of India (SIDBI), and later it will be converted to a separate institution.
  • The bank was decided to act as regulator of MFIs, but later the decision was withdrawn and it will be done by RBI.
  • There is no fix interest rate in MUDRA loan; it will vary from bank to bank.
  • It was launched by Prime Minister Narendra Modi in New Delhi.

 National Payments Corporation of India (NPCI)

National Payments Corporation of India (NPCI) is an umbrella organization for all retail payments system in India. It was set up with the guidance and support of the Reserve Bank of India (RBI) and Indian Banks’ Association (IBA).


Why was NPCI set up?

Before NPCI, there were many systems providing different services at different levels. So NPCI was proposed so as to consolidate and integrate all these systems and provide a uniform and standard business process for all retail payment systems in the country. NPCI was incorporated in December 2008 and the Certificate of Commencement of Business was issued in April 2009. It is registered under Companies Act 1956.
NPCI has ten promoter banks namely, State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank and HSBC.

Services provided by NPCI:

  • National Financial Switch (NFS) ATM Network: It connects 1,98,953 ATMs of 449 banks. The service came into effect from October 15, 2009
  • Cheque Clearing System
  • Immediate Payments Service (IMPS): The service is provided 24x7x365.
  • Automated Clearing House
  • Electronic Benefit Transfer
  • RuPay Card: It is a domestic card payment network to provide an alternative to international card schemes. As on end-October 2015 over 220 Million Indians own RuPay cards.
  • Unified Payments System: The service was launched on 11 April 2016. It is aimed at providing a single id to transfer the funds anywhere (reducing the use of IFSC codes).