Contours of banking in India could drastically change in the near future.
The Reserve Bank of India (RBI) will issue fresh banking licenses to private players, including non-banking financial companies (NBFCs) provided they fulfil the requisite criteria, finance minister Pranab Mukherjee said on Friday while presenting the Union Budget for 2010-11. No new banking licenses were issued by the RBI in the last several years.
The move would enable several players like Reliance Capital and Aditya Birla Financial Services Group, which have been waiting in the wings to enter the banking sector.
However, these new entities that are keen on entering the banking sector, would be required to meet stringent obligations like maintaining stipulated cash reserve ratio — the portion of deposits that banks are mandated to park with RBI — and statutory liquidity ratio, the quantum of deposits that banks need to maintain in the form of gold, cash or other approved securities.
They would also need to focus on deposits, which is likely to be a challenge, according to an analysis by KPMG.
“We need to ensure the banking system grows in size and sophistication to meet the needs of a modern economy. Besides, there is a need to extend the geographic coverage of banks and improve access to banking services,” Mukherjee said in his speech.
The RBI would have to come up with definite guidelines and eligibility criteria on the same.
“The move seems long overdue,” Abizer Diwanji, head of financial services, KPMG said.
“This is a very positive step that will accelerate the mobilisation of resources for transformational growth in infrastructure,” Sam Ghosh, CEO, Reliance Capital Limited said.
A sum of Rs 16,500 crore would be infused into public sector banks to ensure that they are well capitalised, the FM said.