Banking Licenses and Public Sector aspirants

The list of 26 new Banking license aspirants provide an interesting contrast and a challenge to RBI to ensure that the long term Banking policies set by RBI will be adequately served by the right choice of licensees. Initially, it was indicated that RBI may not be keen to issue more than 6 licenses. However, the Finance Minister has clarified during the day that there may not be any artificial limit to the number of licenses to be granted. This has opened up the possibility of a number of aspirants to be able to obtain the provisional license.

Amongst the applicants we can identify three distinct categories of organizations namely the Private Sector Corporate Groups, Private Sector NBFCs and the Public Sector.

The Four Public Sector organizations that have sought licenses are

1. Department of Posts.

2. LIC Housing Finance Ltd

3. Tourism Finance Corporation of India Limited

4. IFCI Limited

After ICICI and IDBI entered Banking, it was natural for IFCI to also consider entering the Banking sphere. Unfortunately, both ICICI and IDBI lost their character as “Providers of Long term financiers” in the country and turned more into short term retail financing. IFCI is also likely to follow the same route.

It is however interesting to note the entry of Department of Posts which is perhaps one organization in India with the largest network of offices and the ability to serve the nooks and corner in the Country. Post offices already maintain savings and term deposits and hence the organization is well equipped to take on the new responsibility. However it is not clear if the make over is beneficial to the economy in general since Post office already exploits its rural presence in providing Banking services and in the semi urban and urban areas it is not possible for the department to compete with other Banks effectively at least in the near future.

LIC Housing and  Finance and Tourism Finance Corporation may opt to convert themselves into Banks. It is unclear how they will fare as retail bankers.

It appears that some of these organizations want to be in the Banking domain more for the sake of prestige rather than any specific expertise beyond their current operation. Despite their one strength namely “Trustworthiness”, there is no specific indication that they will succeed as “Bankers” whose main business is to “Mobilize Deposits from the Public” and “Lend”.

RBI needs to think if the process of licensing will create organizations which will struggle managing the transformation from their current successful operations in a niche area to an unknown area where their expertise will have to be built on large scale poaching of banking personnel from other established Banks.

Naavi

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About Vijayashankar Na

Naavi is a veteran Cyber Law specialist in India and is presently working from Bangalore as an Information Assurance Consultant. Pioneered concepts such as ITA 2008 compliance, Naavi is also the founder of Cyber Law College, a virtual Cyber Law Education institution. He now has been focusing on the projects such as Secure Digital India and Cyber Insurance
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