FM favours licences for banks with special focus

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SummaryThe more lucrative part of the business will get a lot of flair.

While finance minister P Chidambaram on Friday batted for banking licences to those who want to set up specialised or different banks rather than the ones keen to establish clones of existing lenders, the country’s largest lender State Bank of India hoped that such a move would not put universal bankers at a disadvantage.

“I am confident that will not happen and innovative idea and innovative banking will gain recognition by the licensing authority,” Chidambaram said at ‘Bancon 2013’.

The finance minister comments are significant as the RBI has recently come out with a discussion paper that brought forward the proposal for differentiated licences for small banks and wholesale banks and also suggested that issuing bank permits should be a continuous process.

Expressing hope that new bank permits are handed out by January 2014, the finance minister said at least some of these should be given to innovative and different models of banking addressed to meet the needs of special segments of the people.

“We need banks which cater to communities, we need banks which cater to people living in ... states where there is tribal population, we need a different bank to cater to the needs of North-East,” Chidambaram said, adding there is also need to promote banks which can cater to urban poor and farmers.

However, SBI chairperson Arundhati Bhattacharya stressed that such a policy should not lead to regulatory arbitrage.

“Then, the more lucrative part of the business will get a lot of flair. For universal bankers like us who have some amount of business cross-subsidised by other players, if we get a lot of competition in the lucrative business, then it would be difficult to maintain the other business,” she said.

The RBI is likely to hand out about half a dozen new bank permits. As many as 26 applications had been received for new bank licences on the close on July 1, 2013.

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