New Bank Licences

[M Saravanan]

Hello all,

Discussion paper on giving new bank licences have hit the headlines again.

Though inception of new banks will bring in cut throat competition in the banking industry

and will result in higher quality of service, will it serve the RBI's intention of higher financial inclusion?

Past trend also does not give encouraging facts. Out of 12 licences issued in the past 2 decades,

only 4 to 5 banks have stood against the time. Won't the gloomy nature of these history reflect in future also?

Also potential players expecting the licences are majorly industrial houses. In 1969, most of the banks were nationalized

for the simple reason that they just acted as a partner for industrial houses. If new licences are issued to indutrial players 

now then wont we see a paradox ? Does the purpose of industrial houses and banks meet at any point?

There are several nagging questions in everyone's mind. lets wait and see the game.

Pls throw up your views on this topic.

Regards,

M.Saravanan

[DC]

Some point to ponder over the new bank licenses issue:

Big Companies like Reliance, Tatas are in a position to get loan at a
very less rate (even below the Base rate by way of Commercial Paper)
and able to demand higher deposit rate on the amount they are having
with the bank. By keeping the above fact into consideration, are the
banks not better off with these big accounts. (Do throw some points to
think over the situation, where bank don’t have so called big account)

Another fact remains that about 40% of the lending by bank are
generally made to Big corporate, who have the power to influence the
rate substantially.

Next point – whether new licenses serving the RBI's intention of
higher financial inclusion. My answer will be as good a guess as any
another person. Banks will be looking at tapping fortune at the bottom
of the pyramid.

Observation about the Past trend where out of 12 licenses issued in
the past 2 decades, only 4 to 5 banks have stood against the time is
not the point we need to ponder about as most of them failed just
because of the wrong policy of the management. In this new series
where RBI is looking at giving license to NBFC with higher financial
resources, this point should be a non-starter.



Cheers
DC