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The much-awaited norms for awarding new bank licences are out and RBI has been judicious and pragmatic in laying down the criteria. The field is open to anyone with a good track record who can bring in the necessary capital of R500 crore and falls in line with priority sector lending and meet the ‘inclusive banking’ norms of having 25% branches in unbanked areas (population of less than 9,999). Further, they can neither lend nor have investments of any sort to the promoter group—which eschews the concern on whether a business house will direct funds through the bank to its own group. The promoter has to be in for 5 years and go in for a listing within 3 years, and can start with 40% holding, which will be down to 15% after 15 years. Foreign money can come in, but it will be up to 49% to being with.
RBI should be commended for opening the doors and adding caveats to ensure that there is no misuse of the licence and that they operate on a firm footing, which is in line with the objectives of banking in the country. There are really two questions that can be put up for debate. The first is whether this is good enough for private capital to flow in. The second is whether this will change the architecture of banking in the country.
Any entity seeking to enter this field would consider first the preconditions that have to be met. There are two issues here. The first is whether money can be made and the time taken to earn it. The norms laid down are quite tough as the initial capital is high and the commitment to priority sector lending along with the branch location in rural areas can be a dampener. The CASA deposits are attractive, especially for an NBFC waiting to enter the arena. But the restrictions on lending to one’s own group can come in the way, especially so when the promoter group is large and the companies involved are also large and demand credit from the system that cannot be catered to. This can be a dampener for them—especially for conglomerates who have diversified interests.
The second is business prospects. When the first set of new private banks was allowed in the 1990s following the recommendations of the Narasimham Committee, the field was restricted in terms of technology and regulation, which