RBI offers more licences to foreign banks than local players: Chakrabarty

Number of foreign banks rose to 43 from 31 in 5 yrs. In comparison, only two Indian firms got approval to set up banks in April 2014 after a gap of nearly a decade

India offers more banking licences to foreign banks than local players, KC Chakrabarty, former deputy governor of the Reserve Bank of India (RBI), said on Saturday.

“We should give bank licences more liberally...It is the fault of our policymakers, regulators that they don’t give enough banking licences. In our country, we give more licences to players from outside but we don't give many licences to domestic players,” said Chakrabarty, at a seminar on financial inclusion organised by the Indian Chamber of Commerce in Kolkata.

The number of foreign banks in the country has increased to 43 at the end of March, 2013 from 31 at the end of March, 2009. Compared to this, only two Indian companies – Bandhan and IDFC – were granted in-principle approval to set up banks in April, 2014 after a gap of nearly a decade.

RBI, however, has said it intends to use the learning from this round's licensing exercise to revise its guidelines appropriately and move to give banking licences more regularly, almost on tap. The banking regulator has also released draft guidelines for licensing of payments banks and small banks in July, 2014.

At the same time, the central bank has also promised foreign lenders a 'near-national' treatment in branch expansion if they decide to create subsidiaries in India. Foreign banks often complain that their growth opportunities in India have been limited because of restrictions on branch expansion.

Chakrabarty said more Indian private players should be allowed to enter the banking sector to expand the reach of financial services in remote corners of the country. “There is no ambiguity (that more banks are needed in India). RBI themselves have said that. It is no longer a matter of debate,” he said.

According to the government's population census 2011, only 58.7 per cent of households were availing banking services in the country. While compared to the previous census 2001, there is a significant improvement in access to banking services, it indicates that still over 40 per cent of India's 1.2 billion people remain financially excluded.