Taking a leaf from the Indian Telecom Success story and to emphasize more on inclusive growth story, the RBI is considering a rural and semi-urban stint for the new banks in order to strengthen its prospects of financial inclusion for the unbanked people of India.
A finance ministry official has quoted of saying
new entrants may only be allowed to open branches in rural areas for the first two years and the subsequent period will depend on the basis of their direct lending to the agriculture sector, opening of no-frill accounts and other financial inclusion criteria
During the announcement of the annual budget on February 26, finance minister Pranab Mukherjee had asked the RBI to provide new banking licenses to increase the geographic coverage of banks and improve access to banking services. In fact, the larger objective in this move reflects attaining financial inclusion.
As per statistics of RBI, the 22 private sector banks have together opened 1,113 branches in rural areas, indicating the lower thrust towards financial inclusion from the private sector. According to the ministry, the RBI is also considering putting down stringent guidelines on capital provisioning for new entrants.
If things work out on expected lines, new banking licenses may turn out to be a dampener for the hopefuls who are lining up for banking license.
NBFCs mostly lend to sectors like infrastructure equipment, farm equipment and commercial vehicles since these areas do not get loans from the banks. Banks have limitations in lending to these segments since these require the banks to appraise the client before advancing the loan and accepting money in cash from lenders. Conversion of some of these NBFCs into full-fledged banking structure would enable these infrastructure companies to raise loans at a cheaper rate. Low cost of fund raising will enable these infra companies to maintain the competitive spirit of the industry.