Last year, the government was
preaching about consolidation
in the banking sector. But now, it seems that the government
has changed its stance. In fact, the new theme across the government circle
is that consolidation and extension of financial services could go
simultaneously. The new motto is that "India not only needs large banks, but
also more banks." This changed stance has been reflected in the Union
Budget 2010-11. In the budget, the Finance Minister, Pranab Mukherjee has
announced that the country's apex bank, RBI, which has in recent times been
extremely conservative in granting new licenses for banking, is now
considering granting some additional banking licenses to private sector players. He
has also spelt out that the NBFCs would also be considered if they meet
the RBI's eligibility criteria. The intention of the government in allowing
more players in the banking space has been to push financial inclusion as well as
to promote healthy competition in the industry. For a nation of over 100
crores, India has only 171 banks and a branch network of just over 81,000,
including regional rural banks. Now, the government and the central bank, in the
same vein, are focusing on financial inclusion to improve the access of millions of
citizens in the hinterland to banking services.
A handful of private corporate entities and a number of NBFCs have long
been in the fray to grab banking licenses. This announcement by the
government has definitely rekindled hopes among the big corporate players, such as
the Aditya Birla Group, Anil Ambani-promoted Reliance Capital Religare
Enterprises and Bajaj Auto group to kick-start their banking business.
Besides, big NBFCs such as Shriram Group and Srei Infrastructure Finance
Limited have evinced interest in acquiring banking licenses. Others like
Indiabulls, Exim Bank, SIDBI and IFCI are also likely to apply for the licenses.
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