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The Government’s proposal to allow new players in the banking sector has evoked strong reactions. And, on expected lines too — criticism from trade unions and former bankers, and welcoming noises from customers hoping for better service .
Sample this: “Where is the need for this if the existing players strengthen their presence,” asks C. H. Venkatachalam, General Secretary, All-India Bank Employees’ Association.
Bitter experience
Venkatachalam is clearly irked with the Reserve Bank of India’s plan to give bank licence to select applicants. “There is absolutely no need for such an experiment, particularly after the bitter experience that we have faced in the past.”
Putting forward his rationale, he says: “Look what happened to Global Trust Bank (GTB). This private new generation bank, which commenced operations in 1994, could not maintain its identity for more than a decade.
“The RBI’s intervention, though late, helped restore faith in our banking system. GTB ultimately was taken over by the state-run OBC (Oriental Bank of Commerce). Why should OBC accept to bail out a bank such as GTB and absorb its bad loans? The bank (OBC) had claimed that it would have some tax benefits, but such accommodation is not in good taste. Banks — public or private — are run with public money.”
“Do you remember how people panicked across many parts of India when ICICI Bank’s ATMs ran out of cash, just before the GTB imbroglio? Here, again, the RBI had to reassure the people that the bank did not face liquidity problems,” the AIBEA General-Secretary says.
T. R. Bhat, former Joint General Secretary of All-India Bank Officers’ Confederation, categorically says: “New banks will tend to cater to the already banked urban and metropolitan centres and high net worth individuals (HNIs).”
“There is also a contradiction in the Finance Minister’s policy approach. He wants consolidation of banks on the one hand while permitting entry to newer players on the other,” observes Bhat.
“If SBI is able to operate around 15,000 branches, why can’t other banks grow in size? There are 25 public sector banks. Even if each of these has 10,000 branches, there will be over 2.5 lakh branches in the country,” argues Venkatachalam.
RBI rules encourage banks to open a fourth of their new branches in un-banked rural areas with a population of less than 10,000 people, or Tier-5 and Tier-6 centres as they are called in industry jargon.
A master circular of RBI on Branch Authorisation issued on July 1, 2010, had classified those centres with population of between 5,000 and 9,999 as Tier-5 and those below 5,000 as Tier-6 centres.
RBI’s monetary policy statement for 2011-12 mandated banks to allocate at least 25 per cent of the total number of branches proposed to be opened during a year for un-banked rural centres.
Since December 2009, the RBI allowed domestic scheduled commercial banks to freely open branches in Tier-3 to Tier-6 centres with population up to 49,999 people under general permission, subject to reporting.
Welcome move
K. N. Ravichandran, a chartered accountant and tax consultant in Coimbatore, is, however, all welcome for the RBI move. “The Indian economy is growing and it needs new players. The entry of new players is bound to trigger competition. It will be good for the customers as they will be able to compare the various options,” he says.
One NRI entrepreneur working in the area of social media feels that with new banks, old-fashioned or non-performing banks will either buck up and perform or perish. The RBI's move is good for consumers, he says.
New bank licence
Big or small, old or new, next-generation or cooperative, every bank has a place in India. While the chiefs of some of the big banks have always maintained that ‘size’ does matter, chief executives of some of the near-century-old private banks have stood by their desire to maintain the distinct identity of their institutions.
However, it’s once again time for change . Twenty-six aspirants are keenly awaiting Reserve Bank of India’s announcement of eight successful candidates that will be allotted bank licences in this round of expansion..
So, what do the stakeholders — customers, trade union leaders, former bankers, entrepreneurs, among others — think of the new banking licence?
Are they looking for a change? If yes, what kind of change have they in view? Business Line spoke to a cross section of society to get their views.
(To be continued)
revathy.lakshminarasimhan@thehindu.co.in
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