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Proposal to set up banks for the needy

New Delhi, Feb. 25: Banking licences should be split into two — one for basic services and another for complex financial transactions.

“Having two types of licences, one for providing basic banking to fulfil the obligations of financial inclusion and the other for full banking encompassing all activities of a commercial bank, could be considered,” said the Economic Survey 2010-11 that was tabled by finance minister Pranab Mukherjee in Parliament today.

Explaining the proposal, principal economic adviser to the finance ministry Dipak Dasgupta said, “In order to meet the broader objectives of financial inclusion, we need some institutes that are able to mobilise deposits at basic levels and allow credit back to the community at large”. “At the other end of the spectrum, we also need specialised institutes that can cater to more sophisticated banking services,” Dasgupta added.

The survey has proposed that microfinance institutions (MFIs) and non-banking finance companies (NBFCs) should be given licences for basic banking services.

NBFCs account for 11.2 per cent of the assets of the total financial system and are an important intermediary for small-scale and retail sectors.

Sources said finance minister Pranab Mukherjee was likely to increase the corpus of the Financial Inclusion Fund and Financial Inclusion Technology Fund, currently at Rs 600 crore each, in the Union budget. These funds support business facilitators, business correspondents, self-help groups, MFIs, NGOs and joint liability groups that are involved in inclusion.

“It’s a good thought to have basic banking licences. However, it needs to be substantiated with a sustainable business model,” said Abhishek Sinha, CEO of Eko India Financial Services. Eko is a business correspondent for ICICI Bank and the SBI helping people who earn less than Rs 5,000 a month and own a mobile phone to open bank accounts.

The survey has suggested that industrial houses such as Reliance Capital, Indiabulls, IL&FS and Aditya Birla Financial Services can be allowed to do banking.

“As regards allowing industrial houses, business houses and NBFCs to promote banks, they may be allowed full banking licence with a provision for avoiding conflict of interests,” said the survey.

However, the survey warns that regulatory robustness should not be compromised for providing banking access.

“The issue of providing eligibility norms for new entities to operate as banks is of paramount importance.”

Moreover, the minimum capital requirement for those proposing to start a banking institution should be graded.

The survey is of the opinion that “the principal of reciprocity could be applied to countries that have allowed Indian banks to expand in their jurisdiction”.

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