Despite being acutely affected by the economic slowdown, this sector remains in the wish list of government and private sector alike. The licenses for new banks in India have been under deliberation for a while now. RBI governor Dr Rajan has committed to issuing the licenses by end of the fiscal. And despite the RBI's initial reservations about allowing too many entities to foray into banking it seems the number is not too small. As per Economic Times, the RBI has decided to issues banking licenses to 7 applicants. More importantly, in the RBI's own words, the entities fetching the license will not be 'look-alikes'. The RBI had earlier proposed differentiated licensing. This is a practice already followed in the US and Singapore. Differentiated licensing could enable specialists such as infrastructure lenders or gold loan companies to do niche lending. Such banks get a regulatory treatment different to what it is for existing banks. For now, nothing except the number of licenses to be issued is finalized. However, we believe that the new entities will not immediately have a meaningful impact on the level of competition in the sector. In fact, it will be at least two years before that is the case. Meanwhile, the inefficient entities need pull up their socks.
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