India does not need proliferation in the number of Banks as banking penetration is quite wide, with Banks harnessing technology and business correspondents (BCs) to connect with customers and reach far-flung areas, according to RBI Governor Shaktikanta Das.

“Banking penetration has been quiet wide. Today, the number of banks and their branches have become less relevant because the reach is being achieved through technology (customer connect and reaching the far-flung areas), it is also being achieved through several new business models (for example, the BCsl or the handheld devices which they carry).

“So, therefore, what India needs is not proliferation in the number of Banks. What it needs is sound, healthy and well-governed banks, which, we feel, will be able to mobilise savings and also meet the credit requirements throughout the country through technology,” Das said in a fireside chat organised by a financial publication.

He noted that there are new players, especially in the NBFC (non-banking financial company) sector, who are entirely digital lenders. The RBI has come out with detailed guidelines for this category of lenders.

“Having said that I would like to say that we are open to receiving new applications for setting up universal banks. And, as and when, an appropriate “fit and proper” application comes, the RBI will not hesitate.

“I am not implying for a moment that today’s number of banks is enough and no more license will be granted...I am not suggesting that. All that I am saying is that if applications are received, certainly we will examine and take a call,” Das said.

The Governor emphasised that Banks are different from other businesses.

In reply to a question whether RBI is reluctant to give license to corporates, Das observed that “Experience world over has shown that when real sector companies enter the banking space, there are potential conflicts of interest. Also, related party transactions (RPTs) is a major issue.

“Experience world over has shown that it will be very difficult to monitor or regulate or prevent RPTs. So, the risks involved are very high.”

Therefore, world over, although there is no specific bar, for example in the US or the Emerging Market Economies, this has not been done. And there are good reasons why it has not been done.

Das said at this point there is no thinking about allowing corporates to enter banking.

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