Ever since the banking sector opened up in 1993, the regulator has given out just 12 licenses (of which 10 were given in the first year, while two were given in 2002 to Kotak Mahindra Bank and YES Bank). Therefore, this announcement came as a good tiding to many public, private players and NBFCs (of the likes of Shriram Capital, Sahara, Reliance Capital, the Aditya Birla Nuvo group, Bajaj Auto group, L&T Finance, Tata Capital, Indiabulls, Religare, Exim Bank, IFCI and SIDBI), who have for long, worked on blueprints to make a name in the Indian retail banking arena. To represent the joys at the bourses in numbers, at the end of the Union Budget day, the Religare stock (an NBFC) had inched up by 3 per cent, Aditya Birla Nuvo gained 4 per cent, Reliance Capital grew by 8.1 per cent while Bajaj Auto Finance surged 5.3 per cent. Expressing his intentions in this regard, Sunil Godhwani, CEO & MD, Religare Enterprise, says, “Banking is a natural progression for any integrated financial services player...” As a company official says, “Religare is currently waiting for a banking licence, and at present, talks are on with the ministry.”
The entry of these new players in a sector which at present has 96 scheduled commercial banks [27 public sector banks (which hold over 75 per cent of the total assets of the banking industry), 31 private banks and 38 foreign banks], with a combined network of over 53,000 branches, will not only increase competition and dilute PSU involvement, but will force some change in the functioning of the banking domain as a whole. But despite hopes that these new banking aspirants will increase penetration of banking services in the country (only 6.4 per cent of the branches of new private banks are in rural areas), the question is: are they prepared yet?
Under the current guidelines, a new private sector bank should have a minimum net worth of Rs three billion, and no single entity or group of related entities can hold more than 10 per cent in a bank. There is a distinct possibility that RBI may increase the minimum net worth limit to at least Rs five billion, but many participants are confident of making the cut; one of whom is Ajay Srinivasan, CEO, Birla Financial Services, who says, “We welcome this initiative and will definitely apply for a licence. We are confident of meeting any eligibility criteria that might be set.” While talking about the change in the eligibility criteria for these new entrants, Usha Thorat, Deputy Governor of RBI says, “We have to work on it. It’s a long process and will take some time.”
Evidently, RBI is not pleased with Pranabda’s positively eager approach on opening up; and however hard the Ministry of Finance may try, RBI has historically been known to have the wherewithal to pull the plugs where necessary. How long before this ‘promise’ becomes a ‘policy’? Two years is our estimate; earlier is our hope; right now is an impossibility – forget it!
The entry of these new players in a sector which at present has 96 scheduled commercial banks [27 public sector banks (which hold over 75 per cent of the total assets of the banking industry), 31 private banks and 38 foreign banks], with a combined network of over 53,000 branches, will not only increase competition and dilute PSU involvement, but will force some change in the functioning of the banking domain as a whole. But despite hopes that these new banking aspirants will increase penetration of banking services in the country (only 6.4 per cent of the branches of new private banks are in rural areas), the question is: are they prepared yet?
Under the current guidelines, a new private sector bank should have a minimum net worth of Rs three billion, and no single entity or group of related entities can hold more than 10 per cent in a bank. There is a distinct possibility that RBI may increase the minimum net worth limit to at least Rs five billion, but many participants are confident of making the cut; one of whom is Ajay Srinivasan, CEO, Birla Financial Services, who says, “We welcome this initiative and will definitely apply for a licence. We are confident of meeting any eligibility criteria that might be set.” While talking about the change in the eligibility criteria for these new entrants, Usha Thorat, Deputy Governor of RBI says, “We have to work on it. It’s a long process and will take some time.”
Evidently, RBI is not pleased with Pranabda’s positively eager approach on opening up; and however hard the Ministry of Finance may try, RBI has historically been known to have the wherewithal to pull the plugs where necessary. How long before this ‘promise’ becomes a ‘policy’? Two years is our estimate; earlier is our hope; right now is an impossibility – forget it!
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