Big bonanza for banking sector

Big bonanza for banking sector

For one, Pranab Mukherjee has come out with a proposal to give some additional banking licenses to private sector players, while saying “non banking financial companies could also be considered, if they meet RBI’s eligibility criteria.”

Further, the Centre allocated Rs 16,500 crore to ensure that the public sector banks will be able to attain a minimum 8 per cent Tier-I capital by March 31, 2011.  That apart, it has also proposed to provide further capital to strengthen the Regional Rural Banks (RRBs) so that they have adequate capital base to support increased lending to the rural economy.

Many private players including Reliance Anil Dhirubhai Ambani Group (ADAG), Aditya Birla Group and Religare Group have been wanting to enter the banking sector. Reliance Capital CEO Sam Ghosh said “This move will potentially open exciting new avenues of growth for Reliance Capital in the future.  We await further details and guidelines.”

Fresh guidelines

Meanwhile, Reserve Bank of India (RBI) Deputy Governor Usha Thorat said that RBI will fresh guidelines soon for any one to enter the banking business. Considering that the last banking licence allotted by the RBI was in 2004, Mukherjee’s proposal of new banking licences for NBFCs and the private sector was a big development in the banking sector, Enam Group Chairman Vallabh Bhansali said, adding “This is the bold out of the blue because we all had assumed that these things will just not happen.”  Similarly, Aditya Birla Financial Services Group CEO Ajay Srinivasan said “We wholeheartedly welcome this initiative and will definitely apply for a licence.”  Experts also feel that this will accelerate the mobilisation of resources for transformational growth in infrastructure and other sectors of the economy.”  

Furthermore, FM’s proposal to recapitalise some PSU banks will benefit from the funding, the banking circles suggest that it is likely to help banks such as Dena Bank, Union Bank of India, Bank of Maharashtra and Oriental Bank of Commerce. These banks, faced with competition from large private sector and foreign banks, have had urged the government to bolster capital.  

The Centre last year had asked medium- to small-sized PSU banks to submit proposals on the capital they will need over the next three years to maintain a capital adequacy of 12 per cent and loan growth of 20 per cent to 25 per cent.

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