After scrutinising the applications for new bank licences on
various aspects, last week Bimal Jalan panel has submitted its report to the
Reserve Bank of India (RBI). Yes, this year RBI is planning to issue few new
licences to some new players in Indian Financial system. The Central bank
issued guidelines regarding licensing of new banks last year. This is the first
attempt of licensing in last one decade since Yes Bank and Kotak Mahindra bank
were entitled with suffix “Bank” against their name in 2003-04.
Banking system is core of any economy and banks its
backbone. Strengthening this sector by providing new licences gives an edge
over the existing one. As many as 25 players are in fray of banking licences
which includes public sector player like India post and IDFC and private sector
Anil Ambani group and Aditya Birla group. Few NBFCs (Bajaj Finance, Muthoot Finance
etc) are also competing for new licences.
Public player like India post have greater chances of
entitled with banks because of its strong nationwide distribution channel specifically
in rural India and having experience in administrating a saving bank scheme and
accepting PPF deposits.
Probability of NBFCs getting licences is also high, as these
are already in financial business. If NBFCs are given preference to run a bank,
then rural and semi urban consumer will be the ones who get maximum benefit
because of their already existing network in rural areas. As NBFCs cannot take
deposits their cost of funds are high as compared to banks. But when NBFCs are
awarded with banking licence their cost of fund will plunge to the comparable
cost prevailing in market.
As more players enter the banking space, intense competition
among banks might benefit consumers. Banks will focus on reducing operational
cost to maintain their market share or to consume market of others which in
turn will result in charging low interest rates to consumer in long run. This
competitive environment in banking system not only bring down the interest rates
but also innovate the whole banking system with new people coming in with their
new idea, new thinking style and with new strategies which make system work
more efficiently.
India has population of over 1.2 billion of which only 35
percent of population has their bank account. To penetrate more in market, RBI
made it mandatory for banks to open “One ATM in rural area with every three in urban
area” and bank licences to new players will perform the task of catalyst in reaching
out to remaining 65 percent of population which ultimately support the primary
objective of penetrating the untouched market to greater extent.
The step taken by RBI is seen as “Silver line in dark clouds (which
is hovering on Indian Banking System)” to strengthen Indian Banking system.
This gives hope to many economists or to experts regarding expanding reach of Indian banks which make every penny countable and support untouched market to grow if implementation is done properly
rather than mere hype.
