Significant changes are anticipated in India's banking sector. Discussions are underway between the central government and the Reserve Bank of India (RBI) regarding the issuance of licenses to new banks. If all goes according to plan, this will be the first time in nearly a decade that new banks will be approved in India.
Sources suggest that the government's objective behind this move is to further strengthen the country's economic growth rate. Additionally, financial inclusion, which entails extending banking services to every corner of the nation, is a crucial goal.
Limited Entry for Large Companies Possible
Reports indicate that the government is considering allowing corporate entities, with certain limitations, to enter the banking sector. This implies that large companies with b balance sheets might be permitted to apply for banking licenses.
However, stringent regulations will be put in place to prevent any irregularities in corporate governance. This idea has been discussed before, but the Reserve Bank's caution had put a stop to it. Now, this option is being reconsidered.
NBFCs May Get Permission to Become Full Banks
The government and the Reserve Bank are also deliberating whether some select Non-Banking Financial Companies (NBFCs) can be permitted to offer full banking services.
NBFCs already have a b presence in rural and semi-urban areas. If they are granted bank status, they will be able to offer their customers more services related to savings accounts, current accounts, checkbooks, ATMs, and loans.
Market Impact: PSU Bank Index Surges
As soon as this news created a buzz in the market, the Nifty PSU Bank Index saw a sharp rise. While the index had slipped by 0.8 percent in the morning session, it recovered by 0.5 percent in the afternoon.
The index has gained about eight percent so far this year, indicating that investors' confidence in public sector banks is increasing.
No New Banking Licenses Granted Since 2014
The last time banking licenses were issued in India was in 2014. Since then, no new banks have been established in the country. Although some industrial houses did apply for banking permits in 2016, no decisive action was taken on those applications.
Now that the discussion has restarted, it is believed that many new names may enter this sector in the coming time.
Sensitive Decision, RBI Showing Caution
Banking is a sector where people's earnings and future expectations are linked. Therefore, any kind of negligence in this sector can have a very significant impact.
That is why, although the government wants to move forward in this direction, the Reserve Bank is proceeding with great caution. According to sources, the RBI is studying the entire matter and may also plan to adopt a pilot model if necessary.
Talks Between RBI and Government in Final Stage
According to experts, several rounds of discussions have taken place between the government and the RBI on this issue, and now the matter is moving towards a final decision. It is possible that an official announcement in this direction may be made in the coming months.
Key Issues Related to Bringing in New Banks
- Limited entry for corporate houses with specific conditions
- Option to convert NBFCs into banking licenses
- Expansion in rural and semi-urban areas
- Plan to promote digital banking
- Liberal policies for foreign investors
