'Unlike 1993, it won't be a cakewalk for new banks'

Last Updated: Wed, Apr 24, 2013 04:32 hrs

There is a word of caution for new banking aspirants from the banking regulator.

"With all the priority sector obligations that the new banks have to comply with, it will not be a cakewalk for them," cautioned Reserve Bank of India Deputy Governor K C Chakrabarty on Tuesday.

The central bank is in the process of receiving applications from banking aspirants and will issue new licences. The previous occasion it did so was about a decade earlier, when two new entities were allowed.

"Twenty-five per cent of the branches have to be opened in rural unbanked areas (by new banks). Licences will be given to those who can convince (us) that they can further the cause of financial inclusion," Chakrabarty said at an event organised by Bloomberg TV. Unlike in 1993, he said, when more licences were issued, it would be tougher now.

In 1993, the central bank issued bank licence norms for the first time since the financial sector was opened. Nine banks were given licences. In 2001, the 1993 norms were revised.

He also said the aspirants would have to convince the licensing authorities of the will and capability to pursue the objective of financial inclusion.

The objective in allowing new banks is financial inclusion, as a huge part of the population is still deprived of this formal mode of finance. Charabarty said the country had made progress on financial inclusion in the past three years, as 100 million basic bank accounts had been opened.

The central bank had released the final norms on new bank licences in the last week of February and has set July 1 as the deadline for applications.

Many major corporate houses, such as the Tata Group, one of the Birla groupings and Reliance Industries are said to be interested in setting up new banks. So are non-bank financial companies such as L&T Finance, M&M Financial Services, and the Shriram group.

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