<p>The Reserve Bank of India (RBI) has proposed a comprehensive overhaul of the country’s banking structure to increase competition and growth as well as further financial inclusion.<br /><br /></p>.<p>Currently, only a universal banking structure is allowed, in the sense there is no separate licencing for niche activities as in developed nations.<br /><br />Although RBI still thinks the universal model is the preferred route - especially in the aftermath of the global financial crisis - it now acknowledges the need for differentiated banking licences such as for infrastructure financing, retail banking, wholesale banking and investment banks.<br /><br />In a discussion paper titled ‘Banking structure in India — the way forward’ issued recently, the banking regulator has provided a roadmap for the re-orientation of the banking. Accordingly, it proposed a four-tier structure, with the first-tier of three to four large banks, with sizable international presence, while the second tier is likely to comprise several mid-sized banking institutions, including niche banks with economy-wide presence.<br /><br />“The third-tier may encompass old private sector banks, regional rural banks and multistate urban cooperative banks,” the paper said. The fourth-tier might embrace many small privately owned local banks and cooperative banks.<br /><br />And for the creation of large banks, the RBI Paper suggests consolidation as the way forward saying, “The issue has assumed significance, considering the need for a few Indian banks to cater to global needs by becoming global players, and the growing corporate and infrastructure funding needs.” Such activities, it added, should be based on synergies and cannot be imposed.<br /><br />Breaking away from the tradition of ‘stop and go’ licensing, RBI has also proposed a continuous authorisation policy. Till now, the country has seen three phases in bank licences — in 1993, 2001 and the present process which started in 2010. <br /><br />“There is a case for reviewing the current ‘stop and go’ licensing policy and consider adopting a ‘continuous authorisation’ policy, as continuous authorisation keeps the competitive pressure on existing banks and also does not strain the banking system as ‘block’ licensing may do,” RBI said.<br /><br />The regulator has kept in mind the need for smaller banks to cater to small borrowers. “Small local banks play an important role in the supply of credit to small enterprises and agriculture, and banking services in unbanked and under-banked regions,” RBI said.<br /></p>
<p>The Reserve Bank of India (RBI) has proposed a comprehensive overhaul of the country’s banking structure to increase competition and growth as well as further financial inclusion.<br /><br /></p>.<p>Currently, only a universal banking structure is allowed, in the sense there is no separate licencing for niche activities as in developed nations.<br /><br />Although RBI still thinks the universal model is the preferred route - especially in the aftermath of the global financial crisis - it now acknowledges the need for differentiated banking licences such as for infrastructure financing, retail banking, wholesale banking and investment banks.<br /><br />In a discussion paper titled ‘Banking structure in India — the way forward’ issued recently, the banking regulator has provided a roadmap for the re-orientation of the banking. Accordingly, it proposed a four-tier structure, with the first-tier of three to four large banks, with sizable international presence, while the second tier is likely to comprise several mid-sized banking institutions, including niche banks with economy-wide presence.<br /><br />“The third-tier may encompass old private sector banks, regional rural banks and multistate urban cooperative banks,” the paper said. The fourth-tier might embrace many small privately owned local banks and cooperative banks.<br /><br />And for the creation of large banks, the RBI Paper suggests consolidation as the way forward saying, “The issue has assumed significance, considering the need for a few Indian banks to cater to global needs by becoming global players, and the growing corporate and infrastructure funding needs.” Such activities, it added, should be based on synergies and cannot be imposed.<br /><br />Breaking away from the tradition of ‘stop and go’ licensing, RBI has also proposed a continuous authorisation policy. Till now, the country has seen three phases in bank licences — in 1993, 2001 and the present process which started in 2010. <br /><br />“There is a case for reviewing the current ‘stop and go’ licensing policy and consider adopting a ‘continuous authorisation’ policy, as continuous authorisation keeps the competitive pressure on existing banks and also does not strain the banking system as ‘block’ licensing may do,” RBI said.<br /><br />The regulator has kept in mind the need for smaller banks to cater to small borrowers. “Small local banks play an important role in the supply of credit to small enterprises and agriculture, and banking services in unbanked and under-banked regions,” RBI said.<br /></p>
