Are more banks needed …?
In Business Standard of 31st August 2011,there was a very good editorial about RBI’s draft guidelines for granting banking licences to industrial houses.
To read the same in detail, please go to the following link:http://www.business-standard.com/india/news/bankinglicences/447541/
In response to the above,I had written the following letter to the editor on the same day :
This is in response to your timely Editorial titled :”RBI sets tough entry norms..”in BS of 31st August 2011. If all goes well,with RBI’s move to grant banking licenses to industrial houses,in near future,we may have several new banks with say names as Tata Bank, Birla Bank, Ranbaxy Bank, Bajaj Bank, Religare Bank etc.As per the latest information from a reputed source,as per last count,there are presently 23 Public Sector Banks (excluding 5 subsidiary banks of SBI),18 Private Sector Banks, a huge list of Co-operative Banks ( both Scheduled and Non-Scheduled ) and several Foreign Banks with business and branches in India.Does the adage :”More the merrier” augur well for this move ? Certainly not.The intentions of RBI may be good (financial inclusion,competition,etc) but does RBI have the machinery and the manpower to monitor the performance of various types of banks in the country ? Definitely not.This is clear from the large number of scams,frauds,failures etc exposed in the banking sector,in the last decade alone.Banking is defintely an industry, but all industry is certainly not banking. With industrial houses having core competencies in several areas like Engineering,Pharma,Real Estate,etc, it is far fetched to assume that they will also do well in banking which has more and varied degrees of risks.A major area for concern will be monitoring possible diversion of funds from the banking ventures of industrial houses to their other group businesses.No doubt,with the growth in the Indian economy expected and projected to remain strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services is expected to be high but the existing list of banks is certainly enough to take care of the same.A better alternative,as advocated by various ministeries earlier,is consolidation, M&A, takeovers, and asset sales etc so as to have a strong,reliable,dependable banking system on which the common man can bank upon.A meaningful advise to these industrial houses,now desirous of venturing into banking would be to “stick to your knitting ” meaning in general terms, that if a company sticks to their knitting, they continue to do what they have always done instead of trying to do something they know very little about.
J S BROCA,NEW DELHI
Today’s BS (01.09.2011) has published a highly edited version of my letter as under :
Letters :Too much to handle ?
This refers to the edit “Banking on licences” (August 31). At present, we have a number of public and private sector banks, a huge list of co-operative banks (scheduled and non-scheduled) and several foreign banks with business and branches inIndia. The question is if it would be better to add more banks to this list. The Reserve Bank ofIndia’s (RBI’s) intentions may be good – financial inclusion, competition and so on – but does the central bank have the machinery and the manpower to monitor the performance of various types of banks in the country. Definitely not. This is clear from the considerable number of scams, frauds and failures that were exposed in the banking sector in the last decade alone.Another major concern will be monitoring the possible diversion of funds from the banking ventures of industrial houses to their other group businesses. No doubt, with the economic growth projected to remain strong – particularly in the services sector – the demand for banking services, especially retail banking, mortgages and investment services is expected to be high. But the current list of banks is certainly enough to take care of this demand. A better alternative is consolidation, mergers and acquisitions, takeovers and asset sales to have a strong and reliable banking system on which the common man can depend. J S BROCA ,New Delhi.
To read the letter on the web site of BS directly,please go to : http://www.business-standard.com/india/news/letters-too-much-to-handle/447701/ To zoom in on the printed version of my letter page,please try the following link :