New Bank Licenses: RBI’s dilemma


The recent policy announcement by the RBI to issue new banking licenses in 2014 is already facing severe headwinds. RBI’s first commitment is the security of common man’s funds. They will use strict adherence to protecting depositors interests through adequate capital, liquidity, reserve requirements. Also RBIs concern is not to allow the bank to be captive fund pools for the company that started the bank. A major RBI regulatory guideline is that the promoter of a bank if approved, should bring in all their financial service entries under a single wholly-owned non-operational financial holding company (NOFHC).

These conditions will not easily sell well among the major industrial set ups in India. Their objectives are simple, which possibly are

  1. They want sufficient freedom to operate the banks in the shareholders interest
  2. They want a share of the cheap deposits like the monies available in the savings account of the existing banks for its captive use
  3. They may not be interested in serving the priority sectors. The latest data on the non-performing assets in the priority sector will definitely discourage them.

If the RBI stringent regulations were made public well in advance before they called applicants to open up a bank they would not have received 27 applications which included big industrial houses in India. Perhaps the only set of people who may be interested are the NBFC promoters. For them access to large public deposits opens up possibilities of expansion and growth.

If small and medium enterprises look for unsecured bank loans, they should be prepared to pay a hefty borrowing costs and that is no relief: Even the existing banks will be running after deposits as the current high rates of inflation will encourage people to put their savings in gold and real assets.

This entry was posted in Bobby Srinivasan. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s