RBI chief defends new bank licences for corporates

Says the move will enhance competitiveness in the crucial sector; No rollback in liquidity lightening measures till forex markets stabilise

Hyderabad : Reserve Bank Governor D Subbarao on Friday stoutly defended the apex bank’s decision to allow big corporates apply for new bank licences, saying their entry into the banking sector would not only improve competition, but only benefit people at large.

“There has been criticism at various levels of our decision to allow big corporates in banking arena. Critics say corporates’ foray into banking will increase their influence – both political and financial. Our idea in allowing them into this space is to leverage their proven entrepreneurial talent and managerial skills,” Subbarao said, while delivering key note address at Banking Technology Awards Function organized by the Institute for Development & Research in Banking Technology (IDRBT) here.The RBI chief will retire at the end of this month.

Giving more reasons for the step, he said: "Indian corporates have been innovative in penetrating into the hinterland and the expectation is that the same spirit of enterprise will lead to innovation of new business models for financial inclusion”. Besides, large corporates will also bring vast pools of capital that will go into strengthening financial intermediation and making our banking sector more competitive, he added. Moreover, corporates have been operating in other regulated sectors such as telecom, airports and power. They have also been allowed into other segments of regulated financial activities such as mutual funds, asset management, insurance, the RBI chief explained.

The apex bank, which issued guidelines for licensing of new banks on February 22, had subsequently came out with clarifications in the first week of June. Unlike previous rounds, this time RBI had decided to make corporates eligible for bank licences.

“Over the time, the balance of arguments for and against corporates in the banking sector has changed. It is in response to this changed situation that the Reserve Bank took a pragmatic view and determined that allowing corporates into the banking sector would be net positive,” Subbarao said.

On the RBI intervention in forex markets, the RBI chief said the liquidity tightening measures initiated by it would be rolled back only after stability was restored in the forex market. “We will roll back these liquidity tightening measures only after we determine that stability has been restored to the foreign exchange market,” he said. In order to rescue the weakening rupee, Reserve Bank and market regulator SEBI had imposed various restrictions on the futures market by way of raising the margins and limiting the positions that market participants can take. The apex bank had also prohibited proprietary trading in forex market by banks

“As we explained in the relevant circular, these measures were instituted to curb undue speculation that was resulting in the volatility of the exchange rate,” he said. In the Reserve Bank’s view, undue volatility of the exchange rate is harmful for growth and stability and such volatility should be curbed, he added.

Pointing out that innovation and regulation should go hand-in-hand, Subbarao said the RBI’s approach to regulation had been to preserve financial stability and promote consumer protection. “It is the obligation to balance these objectives that has cast a responsibility on the Reserve Bank to take a measured, but constructive approach to financial innovation,” he added.

Later, the RBI Governor presented awards to various banks which received Banking Technology Excellence Awards for the Year 2012-13 instituted by the IDRBT. ICICI Bank and HDFC Bank, both private sector banking majors, received four awards each, while State Bank of India and Union Bank of India, both public sector banks, received three awards each. A total of 23 awards were presented in various categories including Best Bank Award for use of IT for financial inclusion and twelve banks received those awards.

SBI eyes 20% credit growth
State Bank of India (SBI), which is looking at 20 per cent upswing in credit offtake during the current fiscal, expects bank deposits to grow by 16 per cent in FY-14, according the bank's Chairman Pratip Chaudhuri

"We expect the credit growth to be around 20 per cent and the growth in deposits at 16 per cent during the curren fiscal. Though demand from corporates for credit is comparatively low, demand for retail loans is high. Besides, we are also refinancing good corporate accounts as our rates are cheaper compared to others in the market," the SBI Chief told media on the sidelines of the IDRBT awards function.

Asked about the net interest margin (NIM) that the premier bank is looking at, he said: "Our bank has registered comfortable NIM till March last fiscal. We are hopeful of doing well this fiscal too. We have already given outlook for NIM at 3.6 per cent for the current year. We will be able to maintain that level". He also maintained that the liquidity position in the financial system was good.

Pratip Chaudhuri (Centre), Chairman, SBI, receiving IDRBT Banking Technology Excellence Award for 2012-13 for his bank from RBI Governor D Subbarao in Hyderabad here on Friday. Anand Sinha, Deputy Governor, RBI, is also seen. Hans Photo