New banks will need fresh models to succeed: India Ratings

New banks will have to develop a fresh business model to succeed, including making profits in rural areas and tackling risks associated with technology and cash management, as per leading rating agency India Ratings.
"If money was to be made in rural banking within the existing framework, people would have rushed there," India Ratings CEO Atul Joshi said, adding that the banking business is set to go through interesting times with the entry of new players in coming months.
RBI is currently in the process of shortlisting applicants for new banking licenses, for which 25 entities including those belonging to large corporate houses like Anil Ambani-led Reliance Group, Aditya Birla Group, Bajaj, L&T and Religare groups are in the fray.

The licences are being issued after a gap of about a decade and those to have applied in the current round also include India Post, LIC Housing, IDFC, Shriram group, Indiabulls, JM Financial, India Infoline and Edelweiss.
Talking about prospects for new players in banking arena, Joshi said: "It would be very interesting. I would wait and watch to see how things shape up in banking space."
Joshi-led India Ratings and Research Private Limited is the Indian unit of global rating agency Fitch group.

Observing that it would not be easy for new players to succeed with the current business framework, Joshi told PTI in an interview that "nobody lets go of any opportunity where money is to be made."

"If we roll back to 2002-03, not many banks were into areas like housing loans, credit cards, personal loans and vehicle loans. Some people saw an opportunity and they rushed into it, followed by others. Some of them got it right and some of them got it terribly wrong.
"In some areas like personal loans and credit cards everybody got it wrong at that time, from foreign banks to private banks to PSUs," he added.
About the new licences, Joshi said the thrust is mainly on financial inclusion this time around.
"The question that comes to the mind is that if there was money to be made through financial inclusion, people would have rushed into it," he said, while flagging off risks associated with reaching these targets.

"What we are looking into is a model that is more of technology-based, beyond the brick and mortar branches, or a fairly large access to technological devices and technological applications that would help take banking to the people.
"The problem that I see is that do we have the mechanism to control, supervise and govern that kind of banking models, with the existing knowledge of the bankers and at the regulatory levels. I think we need to develop new set of skills at both the levels to provide and govern such kind of banking transactions," he said.