RBI Discussion Paper on Entry of New Banks in Private Sector :CII proposals

Welcoming the RBI discussion paper on Entry of New Banks in the Private Sector, CII said that new banks would be required to fund India’s growth and to drive the inclusion agenda forward.

CII proposed that the minimum capital for new banks should be at least Rs. 1000 crores. CII agrees with the views in the paper that lower capital could result in relatively small banks, which could potentially lead to higher risk taking and more volatile earnings. This in turn could result in lack of focus to financial inclusion and defeat the very purpose of this round of licensing. CII made the point that even the smallest new private sector bank and several NBFCs have more than Rs 1000 crore capital today.

CII proposed that the industrial and business houses that have predominant presence and experience in the financial sector could be allowed to set up banks subject to the due diligence process. CII made the point that industrial and business houses are today  permitted to participate in all sectors of the economy open to the private sector. CII agrees with RBI that strict safeguards should be put in place as proposed in the paper including strict fit and proper criteria, ring-fencing of the banks, majority independent Directors and provision for RBI to supersede the Board.

Considering the need to attract large capital to the banking sector to fund growth, CII is open to the idea of tapping foreign shareholder capital as well. However, CII is of the view that a level playing field must apply to both foreign shareholders as well as domestic promoters.

With respect to NBFCs, in its submission, CII proposed that NBFCs, whether part of an industrial group or not, be treated at par with other applicants and should be allowed to promote a bank with fresh capital. CII does not favour automatic conversion of NBFCs to banks. CII believes NBFCs are complementary financial institutions to the banks, typically focusing on the niches that are underserved / neglected by the normal banking channel and in a way promoting inclusion by their presence in the system.

For More Reading. .

• NEW PRIVATE BANKS FOR WHOSE BENEFIT? – Veeraiah Konduri
• ENTRY OF NEW BANKS IN THE PRIVATE SECTOR – DISCUSSION PAPER
• FINANCIAL INCLUSION AND ECONOMIC GROWTH
• CREDIT FACILITIES FOR MINORITIES
• The Important Facts On Housing Loans : RBI
• Micro Credit: A Lifeline for the Poor