FE@CAMPUS MASTERMIND: Response by Omar Menon to question for Jan 28-Feb 3

Jan 10 2014, 15:08 IST
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SummaryResponse to question for Jan 28-Feb 3: The Banking Laws (Amendment) Bill, 2012, was recently passed by Parliament. Does India need new banks?

Parliament recently passed the banking law (amendment) bill 2012 which now permits RBI to assume additional regulatory powers over co-operative banks.

Parliament today paved the way for corporate houses to enter the banking sector by approving the banking bill, a key reform legislation pending for long.

P.Chidambarm in the combined discussion on the two bills said,"we need 2-3 world sized banks.china has tree among the worlds top 20,we have none . We need more banks". "Banks have opened 6489 branches in 2011-2012 alone that is around 18-19 per day. we do not have the capacity to open more branch. we need banks", he said.

Broadening and deepening the reach of banks is required to achieve a truly inclusive economic growth.

A majority of people who come from underprivileged sections of the society have still no access to formal banking services. An increase in the number of banks would foster greater competition, thereby reduce costs and improve the quality of services.

Banks will have to lower their interest rates on loans to attract borrowers and interest rates on deposits will be raised so as to attract more depositors which will provide an incentive to save more.

Allowing entry to more private well-governed deposit-taking small finance banks with stipulation of higher capital adequacy norms, a strict prohibition on related party transactions, and lower allowable concentration norms would also increase financial inclusion by reaching out to poorer households and small and medium enterprises.

The main objective is to achieve a wider spread of bank credit and then directing a larger volume of credit flow to priority sectors, hence making it a more effective and that is why i feel that India really needs a new banks.

Omar Menon


Trinity College Pune

(This entry is part of our FE MASTERMIND contest. The views expressed in this article are personal and not that of the newspaper.)

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