'India not yet ready for differentiated banks'

It would be bit early to introduce differentiated banks' model in the domestic context, the State Bank of India's research unit said on Monday. "While universal banking model remains the dominant and preferred model across the globe, there are countries, for example the US, Australia, Singapore, Hong Kong (China) and Indonesia that offer differentiated banking licence. We however, feel it would be bit early to introduce such a model in the domestic context," SBI Research said in a report.

It said 40 per cent of India's population falls into the financially-excluded category, and highlighted not so encouraging experiences with the local area and regional rural banks in this regard.

"The differential banking activity licences issued to RRBs and local area banks (LABs) could achieve limited success which prompted authorities to call for large size banks to go for rapid financial inclusion in a time bound manner."

It would be very difficult for a differentiated bank to survive by selling only one or two products, it said. Only the foreign lenders, which undertake niche business activities even though they have a universal banking licence, could be possibly interested in differentiated licencing, SBI Research said.

Additionally, the differentiated licensing model can be tried for fee-based business areas like credit card, remittances, payment and settlement business, it said. The RBI-constituted Nachiket Mor Committee for financial inclusion first mooted the idea of having differentiated banks in the country. The panel's suggestions include specialised payment banks, retail banks, wholesale banks, infrastructure banks etc.

Early this month, RBI granted universal banking license to two applicants - Bandhan and IDFC -- and added that some of the nearly two dozen aspirants were more suited for differentiated banking licence.