Wednesday, August 28, 2013

RBI releases discussion paper on banking structure in India

The RBI issued guidelines for licensing of new banks in the private sector, vide its press release dated February 22, 2013 (covered here). It was stated in the guidelines that there was a need for an explicit policy on banking structure in India, keeping in view the recommendations of the Narasimham Committee, Raghuram Rajan Committee and other viewpoints. Accordingly, it was announced in the Monetary Policy Statement 2013-14 on May 03, 2013 that a discussion paper on ‘Banking Structure in India – The Way Forward’ would be issued. 

The RBI has released this discussion paper on August 27, 2013. The discussion paper identifies certain building blocks for the reorientation of the banking structure to address various issues such as enhancing competition, financing higher growth, providing specialized services and furthering financial inclusion.The paper also emphasizes the need to address the concerns arising out of such changes with a view to managing the trade-off for ensuring financial stability. The issues covered in the discussion paper include small banks v. large banks, universal banking model, block licensing v. continuous licensing, presence of foreign banks in India (and Indian banks overseas), deposit insurance, Government presence in the banking sector and so on.

Comments, if any, on the issues raised in the discussion paper may be forwarded by September 30, 2013 to the RBI. Readers are encouraged to share their thoughts/ analyses with us by way of comments.

-- Satyajit Gupta

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