More banks up and running according to it, will expand the credit available to industry from the financial sector as the headroom available for the existing banks to offer more to sectors like infra is over. It certainly does not expect the new banks to take more than the minimum time to open their door for business, once the regulations are out.
But the RBI would still want to be cautious. It has won from the government far more powers to monitor the boardrooms of banks through the Banking Laws (amendment) bill in the winter session of Parliament, but still sees no reason to drop its guard on not permitting industrial groups, those with real estate or stock broking exposure to queue up as prospective licensees. This effectively means only a rare business house will qualify except with Everest like ring fencing of its other and banking interests. And, it has got the IMF to endorse this position too.
With no new banks on the turf it leaves just two other entities to expand their role in a significant way. The public sector banks and the foreign banks. But the Shyamla Gopinath committee report has demonstrated why public sector banks cannot be a holding company and yet retain a 51 per cent government control at the same time. That leaves only the foreign banks which should have been allowed to expand their presence as wholly owned subsidiaries of their principals abroad. Yet Morgan Stanley has just apparently surrendered its banking license and Goldman Sachsí application too has apparently got rejected last year, though the bank has refused to comment on the development, either way.
In early January, one of the key deputy governors at the bank responsible for framing the policy on the issue has left. By the end of the month the financial sector secretary at the ministry too will have left but those departures are unlikely to change the institutional positions.
Subhomoy is a Deputy Editor based in New Delhi.
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