All you want to know about

Fat cat businessmen make merry with your money, the RBI is always breathing down your neck and the government clamours for cheap loans — banking is a tough business to be in. But over two dozen Indian corporate groups, including the Birlas and L&T, don’t agree. They are among the 25 eager aspirants for licences to run new banks.

Of these, IDFC and Bandhan Financial Services were first off the starting block, getting an in-principle nod from the RBI to start a bank. This approval is valid for 18 months, time for the two aspirants to negotiate the elaborate labyrinthe of rules laid down by the RBI. Once they do, two brand-new Indian banks will be born.

Banking is a licensed business in India and entrepreneurs wanting to enter this space need the RBI’s approval. But the RBI has so far not handed out licences on the tap. Instead, it has done so in fits and starts. An early set of 10 private players were issued licences in 1993-94 and two others bagged them in 2003-04. Kotak Mahindra Bank and Yes Bank have been the only two new banks in India in the last decade.

In February 2013, the cental bank flagged off the third round of licenses and a new set of companies including Aditya Birla, Bajaj Finserv, L&T Finance Holdings and Reliance Capital threw their hat into the ring.

India is severely ‘under-banked’, with only 11 bank branches for every 1 lakh people as against 35 branches in the US, according to the World Bank. This is despite there being 26 public sector banks, 20 private sector banks and 43 foreign banks, apart from scores of co-operative banks.

The RBI is keen to correct this through better financial inclusion. It would also like to reduce the stranglehold of public sector banks, which still hold over three-fourths of the Indian public’s deposits and loans. The RBI also wants new banks to meet priority-sector lending targets and bring in technology-driven innovations. Corporate groups want to get their hands on banking because they get access to low-cost money.

Unhappy with the shoddy service or modest interest rates offered by your bank? Well, more choice is bound to come your way, as new would-be banks try to elbow their way into the crowded Indian market.

The first set of licenses saw the entry of private banks such as ICICI Bank, HDFC Bank, and Axis Bank (UTI Bank), which ushered in technology-driven banking and changed the PSU banks’ old-world ways. These three have emerged as the biggest private sector banks in India, while Kotak Bank and Yes Bank have emerged as specialised corporate banks.

But you should also know that not all new banks have been a roaring success. Some of the Davids floundered and were quickly merged with established Goliaths. Global Trust Bank was forced by the RBI to merge with the Oriental Bank of Commerce after financial discrepancies came to light; Centurion Bank and Bank of Punjab merged with HDFC Bank and Times Bank tied the knot with HDFC Bank.

So it will be important to see how these new players fare, given the tight norms and today’s tough economic environment.

You may be ardently wooed by the new suitors, but don’t switch loyalties too soon. Not everyone who bags a license may make the cut in banking over the long haul.

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