New banking entrants to help improve credit culture: RBI

Reserve Bank's newly appointed deputy governor N S Vishwanathan today said the entry of new players in banking space should improve the credit culture.
"Competition is very important... We have licenced 11 payments banks, 10 small finance banks. That adds to competition and will possibly improve the credit culture," Vishwanathan told an event organised by the Sebi-run NISM.
The newly-appointed deputy governor said the Reserve Bank has issued the draft guidelines on universal bank licensing and soon the final norms will be issued and that "...More players in that space will mean more competition."
Last September, the RBI had given in-principle approval to 10 entities for setting up small finance banks.

These include Ujjivan Financial, Equitas Holdings, Au Financiers, Capital Local Area Bank, Disha Microfin, ESAF Microfinance, Janalakshmi Financial, RGVN Microfinance, Suryoday Microfinance and Utkarsh Microfinance.
Among these, Capital Small Finance Bank has already started operations.

The payments bank licencees are RIL-SBI, Aritel-Kotak Mahindra, Vodafone mPesa, Department of Posts, Aditya Birla Nuvo, Fino Paytech, PayTm and NSDL. But three of the licencees backed out later.
Those having surrendered the licence are Tech Mahindra, Dilip Shaghvi's Sun Pharam-IDFC combine and Cholamandalam Finance, citing changed business paradigm.
Stating that the role of a sound credit culture is very important in developing good credit portfolio, Vishwanathan said, "The trust in a bank is going to be a function of how good it overhauls credit qualities".

In the present scenario where there are lots of stressed assets and also there is a need for improvement in the lending practices of banks, introspection on the a good credit culture of each banks would be a useful exercise, he said.
"This is important in the public sector banks because they have the largest share of stressed assets," he added.
Banks' gross NPAs rose to 7.6 per cent in March 2016 from 5.1 per cent in September 2015, while total stressed assets jumped to 14 per cent (Rs 8 trillion) as of March 2016.
He said banks need to improve their credit underwriting standards and credit appraisal standards.

On the FSLRC (Financial Sector Legislative Reforms Commission) recommendations, he said RBI is in the process of taking some important decisions on the report, especially with regard to looking at certification requirements for people who work in certain specified areas.
"The FSLRC has called for a process of certification for certain specified areas. That was further explored by the Gopalkrishna Committee, which studied it for the banking and non-banking sectors. We are studying these recommendations and looking at what we can do to bring in some order with regard to people being posted in specified areas,"he said.