The banking industry is set to see the entry of more players in the time to come with the finance minister Pranab Mukherjee announcing in the Union budget 2010-2011 speech that in order to extend geographic coverage of banks, Reserve Bank of India is considering some additional banking licences to private companies and non-banking financial companies.
The move may mark the entry of players like Reliance and Aditya Birla Group in the banking industry.
“We wholeheartedly welcome this initiative and will definitely apply for a licence,” said Ajay Srinivasan, chief executive - financial services, Aditya Birla Group.
“This move will potentially open exciting new avenues of growth for Reliance Capital in the future,” concurs Sam Ghosh, chief executive officer, Reliance Capital.
The RBI is expected to come up with a new set of guidelines soon. “We will be looking at what we have already. I think the basis principles of ownership and governance will remain the same as they are useful principles that have stood the test of time. It is just been announced and we will have to work on it,” said Usha Thorat, deputy governor, RBI. The number of licenses to be granted and the timeframe for guidelines have not been decided yet.
Thorat said entities can approach the RBI for new licences only after the central bank comes up with the new guidelines.
“Under the Banking Regulation Act, we just give a standardised licence for doing all the bank services. It will be governed under the provisions of the Banking Regulation Act, which covers the private sector banks,” she said.
The entry of more players will also see more competition in this sector. “Additional licenses would increase competition for existing players,” said Vaibhav Agarwal, vice-president (banking research) at Angel Broking.
After a long gap RBI has considered this move. However, the grant of license may be done initially for just few players.
“RBI will not issue more than two to three licenses in the next fiscal. It will have to be more vigilant in assessing who has the capacity of raising deposits.” said Abizer Diwanji, head of financial services at KPMG.