How to set up a new bank

On 30 March 2016 the Economic Times (Kolkata edition) published an article by Mr. Atmadip Ray and Ms. Saloni Shukla on Bandhan Bank and IDFC Bank, the two new kids of banking on the block. At one place in the article I came across these words, "Few in the country barring Rana Kapoor of YES Bank has had the experience of creating a bank from scratch."

This surprised me. I did not expect a venerable daily like the ET to err in such a fashion. To set the record straight, on 11 April 2016 I wrote to the ET pointing out that I was one of those who were involved in setting up one of the first few commercial banks. I was employed with 20th Century Finance Corporation Limited (TCFC) in Bombay as Vice President when, in January 1994, the first 'Guideline for setting up commercial banks in the private sector" was released by the Reserve Bank of India. On behalf the organisation, I was given sole responsibility (while holding charges of other departments as a VP) for the project to set up a commercial bank.

Mr. Dev Ahuja, chairman of TCFC, had always been keen on banking business. He jumped at the opportunity when the RBI announced its new licensing policy. TCFC was to be the main promoter (ADB and IFC, Washington came on board later). Mr. V. S. Srinivasan, Vice Chairman, TCFC, a brilliant mind and a genius at project management, steered the project from start to finish. (I learned a lot from him). The bank was named the Centurion Bank Ltd.  Yours truly picked the name, was a signatory to its Memorandum and Article of Association, and also selected its HQ. How that came about is another story!

Mr. D. R. Mehta, Deputy Governor, RBI (now retired) was in charge as the head of DBOD. Dr. C. Rangarajan (now in New Delhi) was the RBI Governor.

The new banks were being set up at a time when no one – including those in the RBI – had any experience about setting up a bank from scratch. How the RBI and ourselves learned from each other as we went along, what we went through for setting up the first such banks in India – are tales that were unique, never to be repeated, and possibly will remain untold for ever. I have with me some of the old files, several on floppy disks in Wordstar and Lotus 1-2-3 (know what these are?) that would be lost along with me. Would any archive want to have them? I don't know.

My entire resource consisted of a desktop computer. All the files were on that computer, along with those related to my job at TCFC. No manpower support was given. Back then, I had no idea about the necessity of taking back-ups. I shudder to think what would have happened if that computer had crashed. Probably, Centurion Bank would never have been born. And most likely, I would have been out of a job!

Business Standard did a feature in "Money Manager" on a few of us – including Ms. Chanda Kochar and myself - who were leading the operations on behalf of our respective organisations at that time. (Our photographs were published in the supplement; I still have a copy). A bright young journalist named Pankaj Aher from Business Standard (now Chief Executive Officer at Cogencis Information Services Ltd.) interviewed me at my residence on a Sunday afternoon In Bombay, and wrote the feature. Sri R. Srinivasan, an eminent journalist (now Editor - HBL) was in touch, closely tracking developments. Dr. A. C. Shah (may his soul rest in peace), former chairman of Bank of Baroda, was in charge of setting up the bank on behalf of the UTI. A thorough gentleman, he became a mentor and a friend in days to follow.

Together, we struggled to create a five-year spreadsheet template for a brand new commercial bank. Identifying and selecting the essential parameters, creating a framework for sensitivity analysis, were serious problems that had to be resolved in double quick time. Unlike today, information was hard to come by then. While going about the business of creating the new banks, I realised that no one had ever drafted a memorandum or an article of association for a new commercial bank in the private sector. There was no template, no precedence to follow. Top legal firms in Bombay could not help, nor could the RBI. “Write whatever you want. But don’t bring it to us. If something you include is against the Banking Regulations Act, it will be invalid anyway!” they told me. There were many such instances of ‘creative banking’.

It is definitely not common knowledge that the limit (cap) on the voting rights was enhanced from 1% to 10% only at our (20th Century's) insistence. We fought hard for it, reasoning that roping in other financial partners and financial closure could otherwise have been very difficult, if not impossible. It may also not be common knowledge that along the way, I created and implemented, for the very first time in India, what everyone today knows as the 'centralised banking system' or 'core banking solution' (CBS). (That story too would appear here later.)

Too many 'i's were to be dotted, too many 't's were to be crossed. The problem was, no one had any experience to fall back on, no reference to go by – no one had set up a bank like this before! The RBI wanted the new generation banks to be technology driven. But no one had the foggiest idea what the software platform was to be. Almost every step that we took felt like being for the first time ever. As a banker, I was extremely fortunate to be at the right place at the right time to have this unique opportunity to set up a bank – an opportunity that few bankers could ever have dreamt of having in his/her entire lifetime.

When the regulatory doors were widened further years later, when a few more licences were issued by the RBI, the banking industry in India already had a well-defined, tried and tested road map in place for setting up commercial banks in the private sector. When we had stared, we surely did not. We created the road map, did all the pioneering work, working side by side with the officials at the RBI. It was a fantastic experience, a whole new learning process – sadly, not of much use today.

Centurion Bank is no more; it's long gone. It went through two mergers, the second and the last being with HDFC Bank which took over the bank entirely. However, when the history of (post liberalisation) Indian banking is written, I hope that these facts are not overlooked or entirely forgotten, but find their rightful place at least by way of a small footnote on the pages of the history of Indian banking.

[E&OE. This article is also available at LinkedIn: https://www.linkedin.com/pulse/how-set-up-new-bank-rupnarayan-bose?trk=pulse_spock-articles]