New banks may be forced to offer higher rates

A deregulated savings bank account regime may force new banking entrants to offer significantly higher returns to encourage people to move their “idle” money from their existing banks.

A deregulated savings bank account regime may force new banking entrants to offer significantly higher returns to encourage people to move their “idle” money from their existing banks.

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“Unless the new banks offer substantially higher rates on their savings and fixed deposits, it will be difficult to woo new customers and shore up their deposit base,” said the chief executive of a company that is likely to apply for a banking licence after the central bank finalises the guidelines.

In the draft guidelines, which has been put up for public debate, the RBI has specified a wide range of conditions, including a minimum networth of Rs 500 crore, for companies to be eligible for setting up banks.

The RBI, however, is unlikely to push through with issuing final licences to new banks until such time Parliament approves the Banking Laws (Amendment) Bill 2011.

“It was indicated in the draft guidelines that certain amendments to the Banking Regulation Act, 1949 are under consideration of the government, including a few which are vital for finalisation and implementation of the policy for licensing of new banks in the private sector,” RBI governor D Subbarao said in the monetary policy review on Tuesday.