Would-be banks seeking a licence may be asked to form alliances with regional rural banks to help them begin operations on a wider footprint, as also to hasten financial inclusion in a nation where half of farmer households have no access to credit.
The Reserve Bank of India (RBI) is likely to set a condition that new banks open a certain minimum number of branches in unbanked areas, according to an official.
The central bank is scheduled to finalise draft guidelines for new bank licences this month and some bankers expect these to be announced with the quarterly monetary policy review on Tuesday.
Regional rural banks could increase the reach of bank branches by a fifth. There are 82 RRBs with 15,475 branches in 619 districts. Scheduled commercial banks have about 65,000 branches, two-thirds in cities and towns, leaving a vast number of the 640,000 villages unbanked.
RRBs are usually 50 per cent owned by the central government, 15 per cent by a state government and 35 per cent by a sponsor bank. Finance Minister Pranab Mukherjee, in this year's Budget speech, had promised additional capital to strengthen RRBs. The country needs to grow its banking to meet a modern economy's needs, he had said.
Rural push
- RBI may give licences for new banks to private sector players, non-bank finance companies
- New banks may be asked to open a certain number of branches in unbanked areas
- There are 82 RRBs with 15,475 branches in 619 districts
- The minimum required capital may be set at Rs 500 crore initially
- RBI may not favour securities' firms because of the volatility in their earnings and market capitalisation
RBI plans to consider granting licences to private sector players and non-bank finance companies to promote new banks, it said on April 20. It may selectively permit some large business houses with diversified sources of income and a stable track record, an industry executive said.
The central bank may not be enthused to let in securities' firms because of the volatility in their earnings and market capitalisation. The confidence of depositors could get shaken if income and profits of these firms get eroded, as was witnessed during the global economic downturn in 2008 and early-2009.
An internal committee of RBI is working on the guidelines. The minimum required capital may be set at Rs 500 crore (Rs 5 billion) initially, with a provision that it be raised to Rs 1,000 crore (Rs 10 billion) by the third year.
There is a growing capital requirement if the economy has to grow faster than the 8.5 per cent it aims for the year to March 2011. Foreigners may be permitted to invest up to 20 per cent, the sources said.
"Banks in India will need about $25 billion over the next five years to meet credit, financial inclusion and Basel-2 requirements," said Ashvin Parekh, partner and national leader, global financial services, Ernst & Young.
