It could be a challenge to build public confidence in depositing money with differentiated banks, according to Reserve Bank of India Deputy Governor R Gandhi.
Differentiated banks (small finance banks and payments banks) are distinct from universal banks as they function in a niche segment for furthering financial inclusion.
Elaborating on issues involved in designing the differentiated banking structure, Gandhi said one of the challenges is to build trust in the minds of depositors and public in general.
“Considering that in India we have been only licensing universal banks which engage in all types of financial activities, it may be a challenge to manage public perception and provide enough confidence to the public to enable them to place deposits in differentiated banks.
Need for awareness “There will be a need for creation of awareness through proper communication strategy and depositor education. We are conscious of this need,” said Gandhi in a speech late last week at the Sastra University Campus at Kumbakonam.
The RBI has received 72 applications for Small Finance Banks and 41 applications for Payments Banks.
“We are processing them (applications) and hope to issue licences in a few months’ time. We hope that these new entities will speed up our financial inclusion efforts in a big way,” said the Deputy Governor.
Pointing out that more banks could mean more failures and conceding it was a risk in licensing of differentiated banks, Gandhi noted that failure of a few small banks may not have systemic consequences.
In this regard, he said the bank resolution regime is being strengthened further.
Account shortage The RBI officer observed that it is a matter of concern that even with 150 domestic commercial banks (comprising 26 Public Sector Banks, 20 Private Sector Banks, 44 Foreign Banks, 4 Local Area Banks, 56 Regional Rural Banks) and over 2,700 co-operative sector banks operating in the country, just about 40 per cent of the adults have bank accounts.
While thus the Financial Inclusion efforts through the existing set of banks have been continued, the Reserve Bank is conscious that these may not be adequate to achieve the goals early, he said. The available options for the Reserve Bank to facilitate expansion of banking in the country are through private sector banks and foreign banks.