Money & Banking

Financial inclusion plans, key for granting new banking licence: Subbarao

Our Bureau New Delhi | Updated on March 03, 2011


Private sector players aspiring for banking licences may have to come up with a credible business plan for financial inclusion if their application is to find favour with the Reserve Bank of India. This is because the RBI plans to specify financial inclusion plans as a key criterion for granting new banking licences.

“One of the criteria for evaluating application (for new bank licence) that we will get in due course of time, will indeed be their business plan for financial inclusion,” the RBI Governor, Dr D. Subbarao, said at an Institute of International Finance (IIF) event here on Thursday.

The Finance Minister, Mr Pranab Mukherjee, had in Budget announced that the RBI will consider giving some additional banking licences to private sector players. Based on the feedback to a discussion paper issued in August 2010, the RBI is likely to, before end March, issue the guidelines for additional banking licences.

Meanwhile, Dr Subbarao pointed out at the IIF event that many existing banks look at ‘financial inclusion' as only an obligation and not as an opportunity. As part of the financial inclusion initiative, the Government had advised banks to provide banking facilities to all habitations with a minimum population of 2,000 by March 2012.

Malegam committee

On microfinance, the RBI Governor noted that the Malegam committee report was under consideration of the central bank. He said that the RBI is likely to firm up its views on the recommendations by end-April. The main recommendations of the committee include capping of lending rate of microfinance institutions (MFIs) at 24 per cent per annum.

The RBI Governor also said that the banks need to trim their net interest margins (NIM) by raising their deposit rates and lowering their lending rates. “For the double-digit growth that we aspire for, we will need to have savings... and for that to happen we need to encourage savings, which means that banks will have to raise the interest rates they offer to depositors and reduce the interest rate they charge from borrowers,” Dr Subbarao said.

He said that public sector banks need fund infusion as they expand business. On meeting Basel III capital requirements, Dr Subbarao said that at the aggregate level Indian banking system will meet Basel III capital standards. “In fact, they are comfortably above Basel III requirement at the aggregate level,” he said, adding that it is quite possible that few individual banks may have to augment capital (to meet Basel III norms). The Basel III rules proposed by the Basel Committee on Banking Supervision (BCBS) require banks to raise the core Tier-1 capital to 7 per cent of their risk-bearing assets by 2019. Currently, core Tier-1 requirement is 2 per cent.

Published on March 03, 2011

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