Banking On New Licences

India has a robust banking system — it has 27 state-owned banks, 21 private banks and over three dozen foreign banks. And those are the purely commercial banks. It also has regional rural banks and urban cooperative banks. Put all of them together and you have over 1,700 banks of various descriptions.
 

At the same time, India is also an under-banked country. Only about 60 per cent of its population avails of banking services, according to census figures.
 

The urban rich and middle class are spoilt for choice when it comes to banking services. The poor — both rural and urban — have little or no access to the formal banking system. The urban poor often do not avail of banking services because of the documentation and costs involved. And in remote rural areas, banking services are not even available. Some years ago, the Reserve Bank of India tried bridging the access problem by allowing banking correspondents. However, that experiment has shown mixed results and it is still a work in progress.
 

Opinion varies on the best way to promote financial inclusion. Some feel that the current number of banks in India is enough — they just need to grow bigger and set up more branches in rural areas.

Others feel that the goal of financial inclusion will be better served by allowing new banks to be set up, with the stipulation that they will have a certain percentage of branches in rural areas.
 

As the RBI gears up to grant new licences a decade after the last two licences were given out, 26 applicants have thrown their hats into the ring. How many get licences is not certain. But the stiff conditions that licencees will have to comply with will make it far tougher for new entrants to build businesses than the older private banks that got licences in 1993 or 2003. Senior associate editor Raghu Mohan examines why everyone wants to be a banker in our cover story on page 48.
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The past 16 months have been exceptional for the  BW  editorial team. Our reporters have picked up prizes in all the contests they participated in. Raghu Mohan won the Shriram Sanlam award for ‘Indian economic policy & macroeconomic issues’, senior editor Joe Mathew won the RedInk award for the ‘best business story’, senior editor P.B. Jayakumar picked up the first SCARF-PII Award for the ‘best story on mental health’, special correspondent Shrutika Verma bagged the PoleStar award for ‘best business feature’ in 2012. And, senior assistant editor Vishal Krishna won a special mention from the RedInk jury for his story, ‘Lessons From Dying Malls’.


(This story was published in BW | Businessworld Issue Dated 29-07-2013)