Be it the cricket World Cup or Lok Sabha elections, people make guesses on who the winner would be. Similar speculation has begun regarding the banking licence allotment, too.
N. K. Thingalaya, former Chairman of Syndicate Bank, says the eligibility to get a licence need not be related to the sector from which the licences are sought. It should be based on the track record of the applicants and their performance in discharging their corporate social responsibility.
It would be best to avoid microfinance companies and industrial houses, Thingalaya goes on to add.
In fact, the Executive Director of RBI, R. Gandhi, had stated recently that financial inclusion has to be a precondition for new banks to come in. “It (the number of banks) depends upon the proposal and business plans, including their proposed efforts on financial inclusion. We cannot predict how many applicants will meet these requirements,” he had stated.
There are 26 applicants, but how many of them will eventually land one, remains to be seen.
M. S. Moodithaya, Director, Nitte Institute of Banking, Mangalore, is of the view that corporate houses bring in professional expertise while microfinance institutions reach out to the masses. However, if corporate houses are selected there is “the potential danger of once again tilting to the pre-bank-nationalisation era of practising class banking, rather than mass banking,” he warns.
One of the reasons for nationalisation of banks was the close association of industrial houses with commercial banks. Some of the directors of the banks then were industrialists with control over the finances of the banks they were in. While nationalising major banks in 1969, Indira Gandhi, the then Prime Minister, had said the purpose of nationalisation was to expand bank credit to priority areas that were neglected.
She had stated that nationalisation would remove the control of the banks from the hands of a few, and would provide adequate credit facilities to agriculture, small industry and exports.
But, opposing the issue of new licences, T.R. Bhat, former Joint General Secretary of the All-India Bank Officers’ Confederation, says if new bank licence are issued it will be a throwback to the situation prevailing prior to 1969.
Betting on non-banking financial companies and microfinance institutions, Chowdari Prasad, Professor and Dean at Manipal-based T.A. Pai Management Institute, suggests that such institutions be accorded priority over others. “After all, financial sector business is better handled by them than industrial houses or infrastructure corporations which should focus on their domain areas of specialisation. The philosophy of the earlier two nationalisations cannot be reversed in the process of new licensing.”
“On the likely candidates, Bhat said, “If granted licence, India Post can achieve the goal of financial inclusion more easily because of its wide network in the country.”.
According to Chowdari Prasad, India Post will be able to provide savings- and remittance-related services in remote areas. However, he doubts India Post’s ability to handle credit portfolio efficiently.
Thingalaya feels using technology to reach out to un-banked areas will not be difficult for most corporate entities.
If some of the fast-moving consumer goods companies could successfully expand into rural markets by adopting information technology, it should not be a formidable task for new banks floated by corporate entities to operate in rural India, he adds.
As much of the population remains outside the ambit of the banking sector, new banks are required to be set up in the under-banked States. “At least one of them should be located in the North-East, preferably at Guwahati,” he states.
According to a bank officer in Mangalore, not many foreign or private sector banks can undertake financial inclusion. Only public sector banks and regional rural banks can undertake this task, he asserts.
(Concluded)