The Standing Committee on Finance has pulled up the government for ignoring its recommendation of giving top most priority to financial inclusion and social banking while formulating plans to issue additional bank licences to private players.
The committee has again asked the government to give utmost importance to outreach banking while granting new licences. It has also asked the government to evaluate the Banking Correspondent model, as it has not found favour with private and foreign banks.
Finance Minister Pranab Mukherjee in his Budget speech for 2010-11 had announced that new banking licences would be issued to private players and non-banking finance companies (NBFCs) to extend geographic coverage of banks and improve access to banking services.
The committee, headed by Bharatiya Janata Party leader Yashwant Sinha, said while the Budget announced the issuing of additional licences for extending geographic coverage of banking services, it was not clear as to how the potential of private players would be tapped to provide banking services in unbanked or under-banked areas, particularly considering their poor track record in this regard.
In its last report, tabled in Parliament in April, the panel recommended that the Reserve Bank of India (RBI) should keep the aspects of financial inclusion in mind while granting fresh licences. It said private players should be mandated to render specified banking services in rural and semi-urban areas.
In its response, the government said RBI issued a discussion paper and invited comments on it in September. The areas of discussion included minimum capital requirements for banks and promoters’ contribution, minimum and maximum cap on promoter shareholding and other shareholders, foreign shareholding, whether industrial and business houses could be allowed to promote banks, should non-banking finance companies be allowed to convert into banks or promote banks, and business model.
The committee said, “The action taken note is elusive in regard to the specific recommendation of the committee that RBI should give top most priority to the issue of financial inclusion and social banking while granting new bank licences.” It has asked the government to consider the recommendation again and furnish its response expeditiously.
RBI is planning to issue bank licences to some players by March 2011. This will mark the entry of large corporate houses like Reliance, Tata and Birla in the commercial banking space, mainly dominated by state-run State Bank of India and private lenders ICICI Bank and HDFC Bank.
The committee said despite the number of measures taken by the government and the RBI to extend the reach of banking, there are 375 under-banked districts and 89 unbanked blocks in the country. It also criticised the government for not taking any action on its recommendation of conducting a study on the effectiveness of Banking Correspondent model and rationale of levying charges on banking services provided through this model.