Debashis Basu: Small banks, big legacy issues | Business Standard Column

Debashis Basu: Small banks, big legacy issues | Business Standard Column

My VIEW:

The central bank, burdened with the dual roles of regulation and supervision
of the financial sector, somewhere on the way, neglected a responsibility which
it was performing excellently well till late 1980’s. That is the one relating
to institution-building and ensuring geographical spread of bank branch network
in rural and semi-urban areas and controlling the concentration of commercial
bank business in urban and metropolitan areas. The sudden awakening and
expression of intention to issue new bank licences early during the current
decade did not reveal what approach RBI would be following  in  allowing
new banks.
Some method in madness was factored in, once the new Governor Dr
Raghuram Rajan settled down at Mint Road. Now, the unsaid policy seems to be to
allow the existing medium sized and big banks to consolidate and grow, bring as
many organisations which are doing ‘banking’ into mainstream banking business
and make them gradually follow the discipline needed in the banking business
and allow new players where there is a ‘gap in outreach’.


At this juncture, RBI may do well to take up a nation-wide study to find
out the unbanked/under-banked areas in the country and under-banked sectors in
the economy. The qualifications for new applicants may have to take into
account their preparedness to meet the gaps which the existing institutional
system is unable to bridge.
M G Warrier 

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