The new banking licences issued to IDFC and Bandhan Financial Services Private Limited and the Reserve Bank’s intention to consider the application of Department of Posts separately in consultation with the Central Government are likely to widen the scope for financial inclusion.

“It was a long process and the RBI has done a careful evaluation, using all filters, quantitative and qualitative, while selecting the entities for banking licences,” said Shashwat Sharma, Partner-Financial Services, KPMG in India. The RBI was convinced that these entities would be able to do justice to the central bank’s declared slogan ‘financial inclusion’, he pointed out.

“While the RBI has been conservative in granting in-principle approval to only two applicants in this round, what is very heartening to note is the stated outlook to review the guidelines and make this a regular process moving towards an ‘on-tap’ policy, including differentiated licences,” said Mr. Sharma.

The new banks added in 1993-94 were only obligated to open branches in rural areas. The banks added subsequently in 2003-04 were required to have 25 per cent branches in semi-urban and rural locations. The current guidelines require new banks to set up 25 per cent branches in un-banked rural locations with population up to 9,999. “If we carefully look at the developments in the two decades, this clearly indicates the focus RBI is having towards inclusive growth and financial inclusion,” said Rishi Gupta, COO & ED, FINO PayTech, the largest business correspondent in India offering a bouquet of financial services.

“Bandhan is well-established in rural parts of Eastern India. It essentially caters to the “entrepreneurial / bankable” masses by extending them credit via joint liability group (JLG) model. Whereas other typical corporate banks find it difficult to make rural branches profitable, Bandhan should be able to leverage its rural presence effectively, said Mr. Gupta. “What needs to be seen is how it is able to cater to the banking needs of the BPL sections of rural India,” he added.

Emerging competition

“We believe new entrants will take time to scale up their branch and liability networks and will not pose significant threat to the strong deposit/retail franchises created by other larger banks,” said Hatim Broachwala, Analyst, Karvy Stock Broking, while talking on newly emerging competition in the sector.

The RBI has also reiterated that the new bank licences will be an on-tap process from here on. and guidelines for the same will be issued soon. Mr. Broachwala said that the process of gradual entry of banks over a period of time would smoothen out future competition in the sector and also reduce risks of failure of new banks.

“We have a strong starting position in corporate banking. As a bank, we will be able to deliver to our existing clients wider array of products. That should reduce our dependency on term loans and allows us to broaden our revenue base from corporate banking. In parallel, it is our goal to build a depository franchise, which we intend also to enter the space of retail banking… to reach the goal of an universal bank,” said Rajiv B. Lall, Executive Chairman, IDFC. “We will also have a particular focus on building up banking footprints in Bharat….going to smaller towns and reach the un-banked,” Mr. Lall added.

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