Letter to BS: Licensing of more foreign banks won't help the ailing sector

This refers to “New solutions to India’s banking crisis” (June 6). While I agree with the writer’s contention of the problems being faced by the public sector banks (PSBs), the suggested solutions may not meet the requirements of the economy. Licensing of more foreign banks will lead to opening of their branches in metros and big cities and catering to select affluent clients and big industry. The removal of requirements of adhering to priority sector norms and opening 25 per cent branches in unbanked areas will reduce any incentive for these new entrant foreign banks to open branches and lend in smaller towns and to small businesses. Removing minimum equity threshold is not desirable.

Moreover, many existing foreign banks have ceased to lend in the retail sphere and have reduced their exposures in the country. Non-banking financial corporations (NBFCs) are a diverse lot of financial service providers in terms of size, structures, financial strength, network of branches, type of business they pursue etc. Many of them will not pass muster. Merely giving more banking licences to foreign banks and NBFCs will not substantively mitigate the problems faced by the Indian banking system. The issues confronting the PSBs needs to be squarely addressed and comprehensive reforms undertaken.

Arun Pasricha  

New Delhi