The Finance Minister has cited two reasons to support his proposal for inducting a few more banks from the private sector.
The first is to promote inclusive growth — the need to extend the geographical coverage of banks and improve access to banking. Apart from the stipulation that the new bank will have a fourth of its branches in the rural areas, the draft guidelines do not have anything specific on financial inclusion.
The second reason cited by the Finance Minister is “the need to ensure that the banking system grows in size and sophistication to meet the needs of modern economy.'' This, rather vague statement, was made on earlier occasions too when the government threw open the doors (in 1993 and 2001). It is doubtful whether the government really believes that a few new entrants will make a material difference to what all banks, public and private are doing now.
Finally, it would be good to remember that the draft guidelines have been formulated a full 18 months after the Finance Minister mooted the idea. Final guidelines will be issued only after the RBI receives the feedback and the necessary amendments to existing banking legislation carried out. The RBI is obviously not in a hurry. The central bank has also made it clear that not all those who qualify will be given licences, meaning, there would be a pick and choose even at the final stage. Incidentally, an expert group appointed by the RBI and not the RBI itself will award the licences. This is meant to safeguard the central bank from political pulls and pressures that are to be expected. But can the expert committee stand up to those any better than the RBI?
