She change: First women's bank to come up soon

MFIs fear competition for women's SHG lending will intensify

Finance Minister P Chidambaram's proposal to start a new bank exclusively for women has raised the hackles of a few micro-lenders.

The proposed bank is to offer loans to women-run businesses and self-help groups (SHGs), a core business for most microfinance companies.

"There is no bank that exclusively serves women. Can we have a bank that lends mostly to women and women-run businesses, that supports women SHGs and women's livelihood, that employs predominantly women, and that addresses gender-related aspects of empowerment and financial inclusion? I think we can. I, therefore, propose to set up India's first women's bank as a public sector bank," Chidambaram said in his speech.

Microfinance institutions (MFIs) feel the new bank will intensify competition and severely affect their businesses. Some micro-lenders also compared the move with the Andhra Pradesh government's decision to set up the all-women Sreenidhi Bank for loans to women SHGs and aiming to keep borrowers away from private microfinance companies.

"It seems the central government has taken a cue from the state government. The budget has not offered us any relaxations on service tax and remained silent on the progress of the central act for MFIs. Instead, we will now have to compete with a new bank that will be financially stronger than us. It might threaten our existence," a chief executive officer of a Hyderabad-based microfinance company said.

The government will provide Rs 1,000 crore as initial capital for the new bank and expects the necessary approvals, including the licence, by October.

The bank will not be covered by the Reserve Bank of India's new licensing guidelines. "If you see the finance minister's speech, this all-women bank will be set up as a public sector bank. Therefore, there is no need for separate guidelines. (Also) it is not being covered under the new bank guidelines," said Anand Sinha, deputy governor of RBI.

Bankers and analysts felt this first women's bank would offer similar products and services as existing banks. "If women are running the bank, they will probably be able to reach out to women better. Economic empowerment of women has a multiplier effect on the economy. Other than that, I think the products and services will be more or less similar to existing banks," said a banking analyst with a global consultancy firm. Some microfinance companies, however, were hopeful of the new bank offering additional funding opportunity for micro-lenders.