Annapurna Finance, a microfinance lender, is the only universal bank applicant so far this year. Notably, last year, the RBI rejected all five universal bank applications. There are now about six aspirants for small finance bank licences. Now, rewind back to 2011. When the RBI, after several years, invited applications for universal bank licences, over 20 notable names queued up. While only two — IDFC First Bank and Bandhan Bank made the cut — the interest received nudged the regulator to make the licensing framework on-tap. Any entity aspiring to become a bank can make an application. But it hasn’t quite turned out that way.

Aspirants like Edelweiss, Indiabulls, Religare and Reliance Capital, have fallen by the wayside. Those like Tata Capital, Aditya Birla Capital and Bajaj Finserv, who have the scale, are unlikely to make the cut, given the regulations. But more importantly, former aspirants such as the Shriram Group, L&T Finance, and M&M Financial Services, aren’t keen to operate as a bank any longer. While the debate of allowing conglomerates to operate as banks will remain an evergreen one, the interesting thing is that growingly non-banks, despite regulations tightening post the IL&FS fiasco and cost of doing business increasing substantially, prefer to remain non-banks. They don’t see an incremental advantage in securing a bank licence.

Perhaps, if HDFC Bank had received some dispensation or handholding on the statutory reserves front in its ongoing merger with HDFC Limited, it may have given some fodder to think differently. But that not being the case, we are stuck with the question of how to bring new names into the banking space. That an attractively sized IDBI Bank has managed to invoke just about four4-5 bidders reflects a problem, which needs urgent attention.

At one end, the RBI is clear that credit and financial inclusion is best democratised by banks, whether universal or small finance. At another end, the government has repeatedly made its intention clear that it doesn’t wish to run too many banks. Either of these objectives cannot be realised unless the regulator and the government meet midway. Of course, without compromising on the Holy Grail — the ‘fit and proper’ test.

It’s not that exceptions have never been taken, and it’s still too soon to judge the success of these exceptions. We are at a stage where decision-makers must have the foresight to extrapolate the end game of these experiments and extend support to ensure that they don’t fail. The longer we delay, the concept of on-tap bank licences may remain a fabulous proposition, but just on paper.