Survey pitches for corporates in banking. But RBI?

If the Economic Survey is the finance ministry’s view, then industrial houses and non-banking finance corporations moved a step closer to getting a banking licence.

Of course, only if the Reserve Bank of India takes the hint.
On Friday, the survey suggested licences be given with riders to avoid conflict of interest. It also suggested separate licences for basic banking and full banking.

Experts said notwithstanding the survey, the RBI’s preference will remain otherwise.

“Only entities which do not have a corporate connection will be considered for a licence first. Sure, the survey will be noted by the RBI, but the prerogative of giving banking licences stays with the RBI and not the finance ministry,” said Suresh Ganapathy, head of financial research team, Macquarie Securities.

The survey says that the minimum capital requirement for those proposing to start a banking institution should be graded.
According to Ashvin Parekh, partner and national leader, financial services, Ernst & Young, if there is a separate banking only for inclusion purposes, then the RBI might have to give a lot of exemptions in respect of cash reserve ratio and statutory liquidity ratio, concessions in capital etc.

“This would eventually bring in systemic risks. Sure, the intention of the government is to encourage financial inclusion, but that can’t be at the cost of financial stability,” Parekh said.

The survey also said microfinance institutions and NBFCs be considered for licence for basic banking. Will it draw interest?

“Till date rural banking has not proved to be profitable from investor’s perspective. But unless there is steady flow of revenue it’s difficult to foresee that any entity would be interested in just basic banking, said Robin Roy, associate director at PricewaterhouseCoopers.