1273507, Anjali Makhija, F1, Q-6, New banking law for more players. Good or Bad?

INTRODUCTION

The Lok Sabha has passed the Banking Laws (Amendment) Bill, paving the way for setting up new private banks and strengthening the regulatory role of the Reserve Bank of India.

The RBI has now been empowered to supersede bank boards to safeguard depositors and shareholders’ interests, as the RBI will be able to investigate the books of the associate enterprises of a bank.

The bill also raises the ceiling on the voting rights of the shareholders of a nationalised bank from 1% to 10% and eases the voting right curbs on foreign shareholders in an Indian bank from the current 10% cap.

Several industrial houses, including the Anil Ambani-controlled Reliance Group and Mahindra and Mahindra (M&M) group, are keen on setting up banking companies.

DISCUSSION

The licensing of new commercial banks had always been a critical issue on which the Central government and the Reserve Bank of India could not seem to see eye to eye. The single most important point that has been debated ever since new bank licenses were being talked about is whether business conglomerates should be permitted to open banks. Allowing corporate houses to enter the banking sector sets the stage for a conflict of interests.                                                                  The new banking law for more player is a bad thing from my view point.
                                 Urban India is well-banked and does not need a new set of players to come and compete. What is really needed for India, is for the rest of the country to get covered through banking services. And what has been demonstrated over the last few years is that no matter how innovative our formal banks are, they are unable to crack the model of commercially viable financial inclusion. And this is what the cornerstone of new banking regime is all about! New bank applicants will be required to open at least 25 percent of their branches in rural areas that lack banking services. But will the corporates, applying for new bank licences, open branches in unbanked areas before jumping to lucrative markets?  Or more banks will lead to more confusion?
Raising concerns over the generation of black money and avenue for corruption, the Parliamentary Standing Committee on Finance has urged RBI to ensure that allowing more private players in the country does not lead to generation of black money. RBI has assured that strict measures have been taken to verify the applications so that only eligible applicants are allowed to start banks. MPs had also suggested auctioning the banking licenses to avoid controversies. Yet, RBI has rejected this suggestion as it may defeat the intended outcome of financial inclusion. Unlike telecom, banking licences cannot be auctioned as banks play a different role in the society, and deal with public money.

CONCLUSION

The question arises as who is going to get benefitted more, a common man or the corporate giants? Most of the industrial houses already have a reasonable financial exposure; for eg. Bajaj has Bajaj Finserv and Reliance has Reliance Capital. But are they attuned to the basic agenda of financial inclusion? RBI is maintaining the stipulation that new banks thus granted licenses, need to open 25 per cent of their branches in rural areas. The question here is, will financial inclusion become real when it shifts from being an opportunity to an obligation? Will new banks be a gamechanger with renewed strength in driving financial inclusion? We'll just have to wait and watch!