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Saturday, November 16, 2013

FM wants bank licences to go to those with innovative models

According to Chidambaram, quality of banking, products is the next challenge that the industry is facing

Finance Minister P  said on Friday he hoped the , expected to be given in January, would be issued to applicants with innovative and different banking models.

Speaking at BANCON 2013, an annual conference on banking, Chidambaram said, “I am happy some of the applicants that have applied for private banking licences to the Reserve Bank of India (RBI) have come up with different models of banking. We need banks that cater to communities. We need banks that cater to people in tribal populations. We need different banks to cater to the Northeast. We need banks that cater to the urban poor — their requirements are different from the requirements of the rural poor. We need banks that cater mainly to farmer families. We need banks that cater to women. I do not know how established major banks can quickly shift gears to cater to each one of these. Maybe, they cannot, and I would accept that. It is, therefore, necessary for us to promote banks that cater to these individual segments of our people.”

“I sincerely hope of the new banking licences given in January 2014, at least some will go to those who have come up with an innovative and different model of banking, addressed to meet the needs of special segments of the people. It would be a pity if the new licences also go to banks that clone existing banks. I am confident that will not happen and innovative ideas and innovative banking will gain recognition by the licensing authority,” he added.

Barring some exceptional innovative measures each bank took, most banks were clones of each other, Chidambaram said. “There is more cloning than differentiating. I am happy the governor has spoken about differentiated banking licences. While talking to people and travelling through the country, I find there is a need for different kinds of banks. Some years ago, we had encouraged local area banks, but that initiative was killed after the first three licences were issued.”

The majority of the people in India do not have access to banking services. Considering people lived under different circumstances, it was fair to say while a small number had actually entered the 21st century, the bulk of India remained in conditions of the 20th century and a small number continued to live in the 19th century, Chidambaram said. “I do not think there is any country in the world where people span three centuries. Banking in India, therefore, has to recognise these hard facts.”

“In the foreseeable future, our biggest challenge will be how to make banking universal,” he said.

Currently, the banking industry is reeling under the economic slowdown. “In a period of stress, it is important for bankers to hold their nerves...While we should be stern with willful defaulters, we must hold the hands of those who are victims of external circumstances,” said Chidambaram.

On decisions on writing off loans, restructuring loans and extending additional credit, Chidambaram said in retrospect, some of these decisions might turn out to be poor decisions. But the authorities shouldn’t question every decision, attribute these to criminal intent and describe these as crimes. “I think those would be the most dangerous decisions authorities can take, and I would strongly advise that is not the approach,” he said.

He added no business could survive and no person could take a decision if every decision was viewed as motivated or as a malicious decision. “As far as the government is concerned, I want to assure as long as you take decisions based on facts and circumstances available to you at that time and do it at the appropriate level, appropriate committed or appropriate forum and exercise your best judgement, we will defend you,” he said.

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