Chances are that RBI may announce the list of seven successful applicants, four from the private sector and three from the government-owned companies

According to the press reports, the Central Board of the Reserve Bank of India (RBI) is scheduled to meet in New Delhi on 7^th March, for the post-budget discussions, where finance minister P Chidambaram will address the meeting. It is unlikely that the Bimal Jalan Panel's recommendations on the new bank licence will be taken up in this meeting, though, on the sidelines, it is likely to be discussed, off the record!

It may be recalled that the Bank of India hosted Indian Bank's Association (IBA)’s annual banking conference (BANCON), in November 2013, when Chidambaram is reported to have suggested that RBI should not issue new banking licences to entities that clone the existing banks!

"In January 2014 new banking licenses will be issued and I wish it would be given to banks with innovative or different models of banking. We need different kinds of banks to cater to different segments in our country. And I would regret if 'clone' banks are given new licences," the finance minister had said.

Chidambaram was emphatic in saying "we need banks which cater to communities, to people living in tribal areas, a different bank to cater to North East, to cater to urban poor, farmer families and cater to woman". Already, the first major break-through occurred with the establishment of Bharatiya Mahila Bank recently.

The first challenge for Indian banks is to become truly universal so that everyone in the country has access to banking services. Calling bankers to focus on reality of India, Chidambaram had said the quality of service and innovative products are being used to serve small number of customers from big cities. "At the same time majority of the population do not have access to banking system. Access to banking is denied to those living in rural areas and only small percentage is able to use banking services," he had said.

The finance minister said, "For most of the people from rural areas, it is either bank or moneylender; there is no other source of funding. Almost 70% of rural population have access to just 9% of the total credit provided by banks in India. This needs to be changed. Banks must cater to small and medium enterprises (SMEs) and small and individual borrowers from rural areas,

To recapitulate, in 1969, fourteen large banks in the country were nationalised followed by six more in 1980. Subsequently, RBI gave licences to 12 private banks, in two phases, including conversion of a cooperative bank into a commercial bank. In the second phase, licences were issued to Yes Bank and Kotak Mahindra Bank way back in 2004. So, it is exactly a decade now, the RBI will be embarking on issuing additional licences in the banking sector, as the volume has grown to an estimated Rs80 lakh crore, and is still growing!

The initial press report indicates that the Bimal Jalan Panel has submitted its findings and it has made its recommendations to the RBI. No names have been given as the selection and announcement will be made by the RBI in due course.

It appears that there are a few serious contenders from government-owned organizations, such as IDFC, IFCI, LIC Housing Finance, Power Finance Corporation, Rural Electrification and India Post. All of them have extensive "financial" experience, not necessarily in the manner expected of a bank in the commercial sense, as we know them. But, there is abundant financially experienced bank talent available in the country who could be employed, should they be offered a banking licence! Also, once the licence is approved in the favour of the applicant, it would naturally follow that they would have to go through the standard formalities and establish the institutions, starting, perhaps, with the name and so on.

In the corporate field, there are a few applicants Reliance Capital, Aditya Birla Nuvo, Shriram Capital, Bajaj Finserv and L&T Finance.

In the writer's opinion, chances are that RBI may announce the list of seven successful applicants, four from the private sector and three from the government-owned companies. Taking into mind the specific reference that Chidambaram made in November, chances of Bandhan Financial Services Pvt Ltd, which is the only one presently operating extensively in the North East, are high. It may be a sure winner in the first lot! Other strong contenders who may go through the first list could be from Aditya Birla Nuvo, Reliance Capital, L&T Finance, IDFC/IFCI, LIC Housing Finance and Power Finance Corporation/Rural Electrification. Most of these companies have sufficient resources and experience at their disposal.

In so far as foreign banks are concerned, they would still be able to enter the Indian banking sector, as the RBI has permitted wholly owned subsidiary of foreign banks to acquire domestic private sector banks as well as set up branches anywhere in the country. RBI framework stipulates that the initial minimum paid up voting equity capital for a wholly owned subsidiary would be Rs500 crore for new entrants. So, foreign banks, such as Standard Chartered, Citibank and HSBC have an opportunity to play much bigger roles in India; they could even "acquire" small private banks in the above fashion.

The Indian economy is growing bigger by the day and expeditious issue of new banking licences would help to set up these institutions; the RBI must ensure that the new licensees are obliged to take care of rural requirements and be available to serve people in small towns and villages.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)