'Avoid regulatory arbitrage in specialised banking licences'

Banking regulator aims to strengthen banking structure over next few quarters through new entry, branch expansion and new varieties of banks

Top bankers in the country today requested the Reserve Bank of India (RBI) to ensure that there is no regulatory arbitrage while offering specialised banking licences to some of the new players.

The banking regulator had said it aims to strengthen the banking structure in India over the next few quarters through new entry, branch expansion and new varieties of banks. It had invited views from chiefs of existing banks on this subject.

"In today's meeting, they (RBI) were wanting to hear our views. The biggest issue is that we should not disturb the equation of regulation and create a regulatory arbitrage. When we talk of (specialised) licensing, the biggest thing that needs to be kept in mind is that we do not allow a regulatory arbitrage to get created. That is the point that was really made," Chanda Kochhar, managing director and chief executive officer of the country's largest private lender ICICI Bank, said.

It is believed that entities getting specialised banking licence may be granted some relaxations. For instance, they may not be burdened with the obligation of priority sector lending. Concerns have also been raised if specialised licences will allow these entities to focus solely on businesses that are relatively more profitable.

"We have made the point that we definitely do not want regulatory arbitrage. We also definitely do not want them to come into areas, which might be cross-subsidising some of the areas that the universal banks are doing currently. If you take out the better portions and leave out the portions that are getting cross-subsidised, then it will be difficult for us. These were our views," Arundhati Bhattacharya, chairman of the country's largest lender State Bank of India (SBI), said.

According to bankers, RBI was yet to finalise the regulations for specialised banking licence.

"RBI wanted our views. They also said that they are currently looking into it and have not made up their minds (on the regulations yet). What they are really looking at is (specialised licences for) the niche areas that currently are not occupied or covered by the banks. On other side, there is a need for financial inclusion. I think, these are the two areas from which the discussion has emanated," Bhattacharya added.