MICROCAPITAL BRIEF: India’s Business Standard Supports Reserve Bank of India (RBI) Proposal to Establish Two Types of Banking Licenses

The Business Standard, an Indian financial newspaper, recently extended its support of the introduction of two types of licenses for banks in India: one for basic banking services to serve the purpose of financial inclusion and the other for providing a full-range of banking services such as is offered by commercial banks. The proposal comes as the Reserve Bank of India (RBI) is reviewing draft guidelines that would bring additional entities such as industrial houses into the banking sector. RBI reportedly proposed provision of “full banking license” to industrial and business houses and some non-banking finance companies (NBFCs). A basic banking license would be issued to other NBFCs and nonprofit microfinance institutions (MFIs) [1]. How NBFCs would be divided between the groups was not specified.

The Business Standard also suggests the “grading of minimum capital requirements for the lenders” and that foreign investors should be allowed to invest in Indian banks. Regarding the allowable levels of promoter shareholding, the report suggests that “as the bank grows in business, the promoters’ control should decline and the bank [would be] managed more professionally and independently.” [1]

By Medha Ravi, Research Associate

About Reserve Bank of India (RBI):
Established in 1935, the Reserve Bank of India undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5 percent stake in the outfit, RBI has since largely divested from NABARD. As of October 2010, owns 1 percent of the bank. RBI consists of twenty-two regional offices as of March 2011.

Source and Resources:

[1] Business Standard news article, “Door open for corporate houses”, http://www.business-standard.com/india/news/door-open-for-corporate-houses/426600/

MicroCapital.org story, October 16, 2010, “MICROCAPITAL BRIEF: Reserve Bank of India (RBI), in Move to Expand Rural Financial Access, Updates Guidelines to Allow Individuals, Nonprofits and Corporations—But Not Microfinance Institutions—to Serve as Business Correspondents for Banks”, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-in-move-to-expand-rural-financial-access-updates-guidelines-to-allow-individuals-nonprofits-and-corporations%E2%80%94but-not-microfinance-institution/

MicroCapital.org story, October 5, 2010, “MICROCAPITAL BRIEF: Reserve Bank of India (RBI) May Allow Microfinance Institutions (MFIs) to Acquire Banking Licenses, Accept Deposits”, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-may-allow-microfinance-institutions-mfis-to-acquire-banking-licenses-accept-deposits/

MicroCapital’s Microfinance Universe Profile: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29

Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/

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