\The central bank may roll out new bank licences by January 2014 but talks of differentiated licensing for first timers have made existing lenders jittery.
Bankers said they needed some assurance from the regulator that new bank licences don’t get ‘special’ regulatory treatments.
On Friday, finance minister, P Chidambaram said he was happy that the Reserve Bank of India (RBI) was thinking of differentiated banking licences.
“I don’t know how established banks will shift focus and cater to unbanked people. I sincerely hope when new bank licences are given out, they are given to people with innovative models,” said Chidambaram on Friday while addressing the `Bancon 2013 conference organised by Indian Banks’ Association in Mumbai.
An entity with a differentiated bank licence need not engage in basic banking activities nor do they need to adhere to priority sector obligations.
RBI has received 26 applications for new banking licences this far. Chidambaram said that some of these have proposed innovative and different banking models. “It will be a pity if the new banks are clones of existing banks,” he said.
State Bank of India’s newly appointed chief Arundhati Bhattacharya emphasised that regulatory arbitrage must be prevented. “The lucrative parts of business will get a lot of players, whereas for people like us who are universal bankers, some parts of business are cross-subsidised,” she said adding that intense competition in lucrative businesses would make it difficult to maintain other parts (subsidised) of the business.
RBI Governor Raghuram Rajan, who spoke at the Bancon on Friday, said that entry of new banks, branch expansion and encouraging new varieties of banks were ways of strengthening the banking structure.
Shikha Sharma, MD & CEO of Axis Bank said differentiated licensing must be given only on basis of ownership and capability. “When you try and do it on different rules and regulations, it inevitably leads to financial tussles because you end up with non-level playing field and you create arbitrage which becomes very difficult to compete with,” she said.
Presently, priority sector norms mandate every commercial bank to lend 40% of their net bank credit to agriculture, small and medium enterprises every fiscal.
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