RBI floats discussion paper on norms for new banks

The Reserve Bank of India today brought out a discussion paper on the entry of new banks in the private sector. The central bank has invited feedback till 30 September on the paper, which deals with guidelines for giving out new banking licenses to business houses and non-banking finance companies (NBFCs), and regulations to foster greater competition.

"The Reserve Bank is considering providing licenses to a limited number of new banks. A larger number of banks would foster greater competition, and thereby reduce costs and improve the quality of service," the bank said in the discussion paper.

The RBI also sought to know "whether industrial and business houses could be allowed to promote banks," and should NBFCs be allowed to convert into or promote banks.

The central bank was of the view that greater competition would also promote financial inclusion.

Currently, India has 27 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, four local area banks, 1721 urban cooperative banks, 31 state cooperative banks, and 371 district central co-operative banks.

RBI said the new licenses are required since vast segments of population, especially the underprivileged, still have no access to formal banking services.