Column : Interesting banking times ahead
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, can’t 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.
