i nc lu s i ve f i nanc i ng
125
It may be noted that the central bank brought out
a discussion paper in August 2013 titled
The Banking
Structure in India—The Way Forward
, which outlined the
reorganization of the existing banks into a layered struc-
ture composed by distinct strata—local banks (privately
owned or cooperatives, LABs), regional banks (RRBs,
old private sector banks, multi-state urban cooperative
banks), national banks and international banks. This,
the paper argued, would be possible only when banks—
including mid-sized private banks, niche banks, small-
sized local banks, and foreign banks—are allowed con-
tinuous entry into the financial market through a system
of differential licensing. The likelihood of transformation
of existing banks—both conversion (UCBs into com-
mercial banks, or LABs or small banks, for instance)
and consolidation (for example, across medium or large
commercial banks) has been envisaged in the paper (see
Box 5.2 for the course actions on the licensing front since
the early 1990s).
The communication that came from RBI along with
the announcement of granting of licenses also signalled a
clear shift in approach in favour of differentiated licenses
and enhanced competition.
RBI’s approach in this round of bank licences could well be cat-
egorised as conservative. At a time when there is public concern
about governance, and when it comes to licences for entities that
are intimately trusted by the Indian public, this may well be the
most appropriate stance. Going forward, RBI intends to use
the learning from this licensing exercise to revise the Guidelines
appropriately and move to give licences more regularly, that is,
virtually ‘on tap’. It will also frame categories of differentiated
bank licences, building on its prior discussion paper, and this will
allow a wider pool of entrants into banking.
5
This vision was re-emphasized in the budget speech
2014–15: ‘…a structure will be put in place for continu-
ous authorization of universal banks in the private sector
in the current financial year…Differentiated banks serv-
ing niche interests, local area banks, payment banks etc.
are contemplated to meet credit and remittance needs of
small businesses, unorganized sector, low income house-
holds, farmers and migrant work force.’
B
OX
5.2
Bank Licensing: The Course of Actions since 1993
January 1993:
RBI released guidelines for licensing of new banks in the private sector. 10 new banks were formed on the basis of
the guidelines—Global Trust Bank, ICICI Bank, HDFC Bank, Axis Bank, Bank of Punjab, IndusInd Bank, Centurion Bank, IDBI
Bank, Times Bank, and Development Credit Bank.
January 2001:
RBI revised the guidelines for new bank licences. Two new banks—Kotak Mahindra Bank and YES Bank—were
formed.
26 February 2010:
The then Finance Minister announces in his budget speech 2010–11 that companies and business houses will
be allowed to set up new banks.
11 August 2010:
RBI releases discussion paper on entry of new banks in the private sector.
23 December 2010:
RBI releases gist of comments from the feedback on the discussion paper.
29 August 2011:
RBI releases draft guidelines for licensing of new banks in the private sector.
10 July 2012:
RBI releases gist of comments from the feedback on the draft guidelines.
22 February 2013:
RBI releases guidelines for licensing of new banks.
1 July 2013:
Last date for submitting applications for new banking licence. RBI discloses names of 26 applicants for new banking
licence—two of them drop out while one new player gets added to the list later.
4 September 2013:
RBI governor Raghuram Rajan announces setting up of a committee headed by Bimal Jalan to screen the
applications.
1 November 2013:
Bimal Jalan Committee holds its first meeting.
25 February 2014:
Bimal Jalan Committee submits its report to RBI.
12 March 2014:
RBI seeks Election Commission’s permission to issue in-principle approvals for banking licence.
1 April 2014:
Election Commission allows RBI to issue new bank licences.
2 April 2014:
RBI grants in-principle approval to IDFC and Bandhan Financial Services to set up banks. The in-principle approval
will be valid for 18 months.
Source
:
Business Standard
(2014).
