Friday, December 24, 2010

RBI's policy of allowing New Private Banks in India

It is very interesting that after having allowed twice, RBI is acting choosy and careful in allowing new private banks on the Indian scene.  Immediately after introducing economic and financial reforms in early nineties, RBI went on permitting new private banks while simultaneously reforming the public sector banks and old private banks besides of course inviting new foreign banks for a level playing field in India. 

The industry witnessed founding of HDFC Bank, ICICI Bank, IDBI Bank, Times Bank, Global Trust Bank, UTI Bank, Bank of Punjab, Centurion Bank and Development Credit Bank (converted from a Coop Bank), in the first phase with a minimum capital requirement of Rs. 100 crores.  However, very soon Times, BoP and Centurion got merged into HDFC Bank for some strategic reasons besides ICICI and IDBI went ahead with reverse mergers.  GTB got force-merged with OCB (public sector) while in the second phase, YES Bank and Kotak Mahindra Bank were born with a capital requirement of Rs. 300 crores. 

In as much as about two decades time, almost all the PSBs (including SBI group) got revamped and well capitalised to meet the global standard CAR of 8% and above in a phased manner.  Foreign Banks of course, some how did not take the advantage of the RBI's invitation to expand, may be primarily due to the rigid monetary mechanism and compliances.  And today, in its third phase, RBI is dilly-dallying its well announced policy of allowing more private banks.  The objections raised by the PSBs not to allow too many private banks (conceding some NBFCs and MFIs) with a capital of Rs. 50 crores or promoted by Corporates which is against the basic philosophy of two nationalisations in 1969 and 1980 earlier. 

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