New players needed for competition in banking sector: PMEAC

Amid RBI framing norms for the setting up of new banks, Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan today said more lenders were required to ensure competition in the sector.

"New [bank] licences are required because no industry can remain competitive if the entry is completely excluded," Rangarajan said when asked if Indian customers need new banks.

Speaking on the sidelines of a function here, he said the Reserve Bank of India (RBI) would lay down conditions for the entry of new banks, "but it can not be that the opportunity for entry can be completely denied."

Following a Budget announcement, the RBI last year floated a discussion paper on allowing the opening of new banks and invited stakeholders' comments on the issue.

According to sources, the Finance Ministry is not in favour of immediately allowing large corporates to open banks and has conveyed it to the RBI.

They said the Reserve Bank might initially give only four licences mainly to NBFCs or Non-Banking Finance Companies.

On the plans of the postal department to seek banking licences, Rangarajan said "Well, I do not know how that will be treated because a bank not only receives deposits but also gives loans...I don't know what they have in mind...."

The department had over Rs 3.72 lakh crore in deposits from 26.45 crore small savings accounts at the end of June.

Telecom Minister Kapil Sibal wants to reach out to the masses in the rural areas with modern banking facilities through the post offices.

With an aim to to commercialise the department, he said recently that the government would seek licence from RBI to convert all post offices into banks.