The question arises as to why new private banks should be allowed at this juncture. The Finance Minister in his budget speech made out a case for the banking system to grow in size and sophistication. Further, financial inclusion — extending geographical coverage and greater access to formal banking — is a highly desired policy goal. In that connection he hinted at the possibility of the RBI granting a few new banking licences to private players.
The RBI discussion paper takes up the cue and gives ample figures as to why India is one of the least banked of the major economies.
Besides new banks will increase competition and spread the banking habit.
The case for inclusion and greater competition among banks is well made out. In fact the banking system as a whole has been asked to focus on those objectives.
To link the entry of new banks to the achievement of those goals seems to be an exaggeration.
One other related question: The government has been advocating consolidation in the banking industry. Even when some banks are merged with another — the most recent example is that of State Bank of Indore's merger with SBI — the process of inducting new private banks has started. These two approaches need not be antithetical to each other but to a lay person it seems that while on the one hand you ‘rationalise' bank branches and may be the staff, on the other you permit new entrants.
