- If you start a company, the company’s name cannot have “Bank” in it if you are not actually a bank. So if Citibank starts an IT/ITES captive, it can’t be called “Citibank Solutions”. Presumably, my HR consultancy can’t be called Talent Bank, or my defensive driving franchise cannot be called Banking Angle. This creates a branding headache for my company, which is a subsidiary of Bank of America.
Why? Because of RBI regulations. I shudder to think of what went on in the mind of the official who formulated such a regulation. I suppose he thought that commoners will see “Bank” and instantly line up with their money to open a savings account.
- If you are a bank in India. You cannot offer only corporate banking. You have to allow consumers to make deposits as well. You want to set a minimum deposit limit of Rs. 50 lakhs to get around the problem? No problem.
- There is an entire line of business called Wealth Management, which the RBI simply does not allow. In the US, if you are rich, your bank will offer to manage your wealth for you. You decide on your investment goals with your account manager, and then the portfolio manager allocates funds between equity and debt, takes buy and sell decisions and executes those decisions. You get a periodic report on how your investment has actually fared against your goals. It is like an individualised mutual fund. The RBI does not allow this practice, because banks cannot promise returns on equity and they do not trust consumers to understand the difference between “promising returns” and “promising to try to get those returns.” Actually, consumers can understand the difference when they invest in mutual funds, but their brain stays at home when they visit a bank. At least, that is what the RBI thinks.
But banks are allowed to set up a Wealth Management practice, where they only provide advice, and their customers have to actually take the decisions. In ICICI’s case, this involves carefully discussing with the client what his investment needs are, and in every case, advising him to buy more insurance because they get hefty commisions from the insurance companies. That is allowed. But an honest business deal is not.
One thought on “In Free India – I”
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Reg. regulation #1
What if the p/e multiples for stocks of companies with “bank” in them is higher?
In the electronics boom of the 80s, companies added “onic”, “tronic”, “power” to their names and watched their multiples grow overnight.
In the I/tech boom of the 90s, companies added “soft” and “tech” to their names, and watched their multiples soar.
It is the decade of finance. There is a glut of companies wanting to add “bank” to their names now.
I most certainly do not condone this regulation however. Just sayin.