How far can new banking licenses be banked upon?
By Vaibhav Aggarwal
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The draft guidelines proposed for new licenses suggest the capital requirement for companies to be eligible has to be in the range of Rs 300 crores to Rs 1000 crores.

However, a problem with this low capital requirement slab may be the fact that it would allow even those firms to compete in the race which do not have sufficient capability to invest in technology and technology is a very important aspect of financial inclusion.

Considering the issue of promoter's shareholding, RBI has proposed that promoter's shareholding should be inversely proportional to equity base; that is with increase in equity base, promoter's share holding should decrease.

Thus the apex bank has many corners to look at before arriving at a final guideline for the issue. But whatever the guidelines are for the new entrants, their entry would increase competition in the market. Increasing competition is expected to benefit the customer.

Banks have to reduce their operational costs in order to sustain to rising competition. Bank license to NBFCs is likely to be favorable for financial inclusion as these companies have a strong presence in rural and semi urban areas.

Once they get a banking license, they will be able to take demand deposits which are otherwise not allowed to them. This would act towards reducing the cost of funds for these NBFCs. This is expected to make loans cheaper for the SMEs and cheap borrowers.

These prospects seem to be lucrative especially for the rural and semi urban customer base.


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