RBI against differentiated bank licences

Reserve Bank of India (RBI) has, for the time being, decided against the introduction of a differentiated bank licencing system, which would have allowed banks to operate in niche areas without having to follow priority sector lending and other regulatory stipulations.

"To enable the banking system to operate at optimum efficiency, and in the interest of financial inclusion, it is necessary that all banks should offer certain minimum services to all customers, while they may be allowed sufficient freedom to function according to their own business models. Thus, it will be prudent to continue the existing system for the time being," the central bank said in a "Technical Paper on Differentiated Bank Licences" released today.

The central bank said it may be seen that one of the major objectives of banking sector reforms has been to enhance the efficiency and productivity of the banking system through competition. It is also the aim of the authorities to provide banking services to the maximum number of people.

It said the situation may be reviewed after a certain degree of success is achieved in financial inclusion, and RBI is more satisfied with the quality and robustness of the risk management systems of the entire banking sector.