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was overcome by the introduction of new banks. They added a new dimension through an array of products for both deposit holders and borrowers, which worked well as can be seen by their position today. Costs were reduced and efficiency norms permeated through the public sector banks, which learnt to compete on an equal footing. While the institution ones dominate the banking space today, the others had gotten assimilated into the system, barring one bank, which continues to do well, belonging to a corporate group. The challenge for the new banks is to bring something new on the table while complying with the RBI norms on inclusive banking. Here, NBFCs converting to banks will have an advantage as they have structures that can be easily put in place and they could take the benefits on the deposits side.
The second macro-based question is whether this will change the landscape of banking? Do we actually need more banks? Currently, banks are well-capitalised and could cater to the requirement of growth in credit of 20% per annum if we are to walk the road of 8%-plus GDP growth. Having more banks will mean more capital coming in. But assuming that there would be no more than 4-5 players to begin with, will R2,000 crore of capital be good enough? Also, canít the same amount be raised by the existing banks? If the government is not willing to divest in public sector banks, then there will be enough latitude for the new ones. The existing private banks could probably only partly meet the requirement. Therefore, more banks should be good for the system.
But, will it increase the overall reach of the banking system? The answer is a shoulder shrug here as most banks are concentrated in the top 200 centres. The RBI data shows that 74% of deposits and 82% of credit is concentrated within this perimeter. This being the case, more new banks in new rural areas may not serve much purpose, and even if they do, at the incremental level, the amount garnered would not be significant though access could be provided. We already hear complaints of banks that have opened branches that are not viable. In fact, some have also closed down branches on this score. Therefore, will new banks be getting into a rut where we force them to open branches in places that are not viable and have to