Govt, RBI to ensure level-playing field in banking sector

The government and RBI will ensure a level playing field for existing banks while allowing entry to new players who will have to operate on a pan-India basis, a senior Finance Ministry official said today.

"There must be a level playing field for the existing banks also. It (entry of new players) should not be a disadvantage to them. The guidelines will be framed in such a way that it will not be disadvantageous to the existing players," Financial Services Secretary, R Gopalan told reporters here.

Announcing the Budget, Finance Minister Pranab Mukherjee had said that the Reserve Bank will consider allowing giving bank licenses to private sector players and NBFCs to enter into the commercial banking space.

Gopalan, who recently took over as Financial Services Secretary, said the Government decided to allow more players in the banking space with a view to promote healthy competition in the industry and push financial inclusion.

"There are any number of unbanked villages. The potential for banking in the country is huge. The government wants additional (banking) footprint and has requested the RBI to consider new players. The apex bank thinks there is a need for it," Gopalan said.

He added that fresh licenses would not envisage the parties to set up localised banks, instead they have to operate with a pan-India focus across the country. 

Recently, the RBI Deputy Governor K C Chakrabarty had said that the apex bank may come out with guidelines on new banking licences in about three months.

Following the budget announcement, a host of business houses including the Tatas, Reliance and Birlas had evinced interest in applying for the banking licence.

About the grant of licences to new players, Gopalan said, "The new banks will be tech savvy to begin with. That will make the existing banks feel the pressure of competition."

On credit growth, he said the Finance Ministry expects a credit growth of 20-21 per cent for state-owned banks in the next fiscal, provided the current pace of economic growth continues.

"If the economy is expanding at 8.5 per cent, we presume a credit growth of 20-21 per cent for the public sector banks in FY11," Gopalan said.

Commenting on RBI's monetary action, he said the central bank has taken into account all factors while hiking the policy rates by 0.25 per cent but it was up to the banks to decide whether to raise their lending rates accordingly.

"RBI has considered a host of factors when they did that. They know what they did...(as far as bank lending rates are concerned), each bank will have to take a view according to their asset-liability conditions," Gopalan said.