Grant more banking licenses, but have strict regime: Economic Survey

February 25th, 2011 - 6:27 pm ICT by IANS  

Pranab Mukherjee New Delhi, Feb 25 (IANS) India’s Economic Survey 2010-11, tabled by Finance Minister Pranab Mukherjee in the Lok Sabha Friday, recommended more banking licences but added that strict regulations must be in place before granting licenses to more players. “Providing access to banking facility to all the citizens is one of the main objectives of the inclusive development. While providing banking access, the issue of regulatory robustness for the banking sector should not be compromised,” said the annual report on the state of the economy in the current fiscal.

According to the survey, the minimum capital requirement for those proposing to start a banking institution should be graded, while the government should consider having two banking licenses - one for those who would provide basic financial services to unbanked areas and the other to those involved in all spheres of banking services.

The survey said that industrial houses and non-banking finance corporations (NBFC) should be considered for full banking licenses, only with clearly defined roles and regulations.

“MFIs (micro finance institutions) and NBFCs should be considered for being given license for basic banking. It is very essential that the basic banking functions are clearly and objectively defined.”

On the entry of more foreign promoters and banks, the survey said that only those entities which clear the regulatory requirements should be considered for a linceses.

“The principle of reciprocity could also be applied to countries that have allowed Indian banks to expand in their jurisdictions,” the survey added.

Earlier, in August the Reserve Bank of India (RBI) had said that it is considering providing licences to a limited number of new banks, for fostering greater competition, to reduce costs and improve the quality of banking services.

Currently, the country has 27 public sector banks, 22 private banks including seven new private lenders and 31 foreign banks.

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