RBI moots discussion on new banking licences

The Reserve Bank today brought out a discussion paper on giving out new banking licenses to business houses and non-banking finance companies, and regulations for the same to foster greater competition.

"The Reserve Bank is considering providing licenses to a limited number of new banks. A larger number of banks would foster greater competition, and thereby reduce costs and improve the quality of service," the central bank said in a discussion paper.

The RBI also sought to know "whether industrial and business houses could be allowed to promote banks." And, should NBFCs be allowed to convert into or promote banks.

The central bank sought feedback on this as also business model for the new banks by September 30.

It was of the view that greater competition would also promote financial inclusion.

Currently, India has 27 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, 4 local area banks, 1721 urban cooperative banks, 31 state cooperative banks, and 371 district central co-operative banks.

RBI said the new licenses are required since vast segments of population, especially underprivileged, have still no access to formal banking services.

The discussion paper outlines various pros and cons for norms like minimum capital requirements for new banks and promoters contribution, caps on promoters shareholding and other shareholders, foreign shareholding.

Various entities like Reliance Capital, IndiaBulls, Religare, IL&FS, IDFC, IFCI and Aditya Birla Financial Services are reported to be mulling entering the banking space.