The 23rd governor of the Reserve Bank of India (RBI) has kicked off a host of reforms proposed to revamp the banking system and bring in new banks into the country.
According to Raguram Rajan, an external committee headed by former RBI governor, Bimal Jalan, will look into screening the new banking licence applications. Rajan expects that announcements for the new licences may come in before or soon after deputy governor Anand Sinha completes his term at the RBI by January next year. Twenty six companies, including corporate groups like Tata Sons, Reliance Capital, L&T and others, have applied for new bank licences.
“The RBI will give out licences with the highest standards of transparency,” assured Rajan while also suggesting that banking licences may be issued “on-tap” and more frequently in line with recommendations made by the RBI staff recently. Differentiated banking licences may also be considered.
Rajan also announced a slew of long-term measures for banks. He insisted that there is a need to reduce the requirement of banks’ investment in government securities in a calliberated way, to discourage banks from “lazy banking”. This is in line with RBI’s mandate to ensure credit flow to productive sectors, he said.
“As the penetration of other financial institutions such as pension funds and insurance companies increases, we can reduce the need for regular commercial banks to invest in government securities,” Rajan said in his speech.
To develop money and G-sec markets, RBI will also introduce cash settled 10-year interest rate future contracts, he said.
Banks will soon not require RBI’s permission to open new branches anywhere in India. “The RBI will shortly issue the necessary circular to completely free bank branching for domestic scheduled commercial banks in every part of the country,” Rajan said.
The RBI will also encourage qualifying foreign banks to move to a wholly-owned subsidiary structure, where they will enjoy a near national treatment on a reciprocal basis. Rajan said the RBI is in the process of sorting out a few remaining issues so this move can be made.
“All that he has said is very welcome. The steps are well thought out and will do