New bank licences for specialised and innovative banks | Not for creating clones
New bank licences for specialized and innovative banks | Not for creating clones
At one of the recent conference Finance Minister said that he sincerely hopes that when the new banking licences are given,some licences would at least go to the people who have come up with innovative and different model of banking addressed to meet the needs of special segments of the people.
Finance Minister was of the view that it would be a pity if the new licence also goes to the banks which clone existing banks. He expressed confidence that will not happen and innovative idea and innovative banking will gain recognition by the licensing authority. Noting that there is more cloning then differentiating, Honbl’e Finance Minister also noted that the governor has spoken about differentiated banking licences earlier.
Notwithstanding the fact the delivering financial services to all the 600000 villages should remain at center of focus, the country needs an extensive range of specialist products and services focusing on specialized lending and liabilities products especially for agriculture and rural clients.
Agriculture specialization needs to be accorded priority– The importance of Agriculture growth has always had a powerful impact on poverty across all the developing countries. Estimates show that GDP growth originating in agriculture is at least twice as effective in reducing poverty as GDP growth originating outside. Agricultural growth also means more production of food, and greater food security. Agricultural growth is a proven driver of poverty reduction.
In such scenario the primarily a new banks could be specialised in one or more of the
- Agriculture, Agro processing and Agri logistics Segment – which focus Agriculture and allied agriculture development, Agriculture SMEs and MSMEs, Agri-logistics, Agri-marketing infrastructure, cold chain, warehousing, agro-processing, Commodity financing, agriculture trade, micro-trades etc. These banks address credit needs from Farm to Firm to Fork in agriculture sector.
- Rural Infrastructure & Rural marketing infrastructure Segment – Poor infrastructure, especially rural and trunk roads (which literally can become arteries of economy) constitute another significant challenge. Besides the lack of rural marketing especially agriculture marketing ( primary and secondary markets) has badly impacted the rural development and access of financial services to last mile. Poor infrastructure and information leave farmers, artisans and rural enterprises effectively isolated from regional, national or international markets.
- SME and MSME Segment- TheSME and MSMEs have been widely considered as one that drive the economic growth country and can generate significant employment and livelihood generation potential for Rural youth. In India the MSMEs play an important role in the overall industrial economy of the country. The MSME sector has maintained good growth rate as also has shown innovativeness and adaptability to survive the economic downturns. As per available latest Census of MSME Sector, it is estimated that MSME sector accounts for about 45% of the manufacturing output and approx 40% of the total export of the country.
- Banks with focus on Hill and Tribal Regions: One of the area of focus could be offering suit of financial services in Hilly regions, North-east Region or tribal areas of the country. While this could still be managed through branch banking policy, it needs special attention.
While such banks will offer a bouquet of products like other private sector banks and operate in all kind of spaces but the specialisation and focus can be on one of the above mentioned areas
Such banks can have preferential treatment in Refinance, interest subvention or Government Schemes and other support, but the banks should not treat this as an obligatory function. They should come up with a profitable business proposition for setting up, developing and growing this bank on sustainable & profitable basi.
Certain support from Regulatory framework and Government may be planned and thought through, however such interventions and subsidies must be redesigned as “market-smart” i.e., without exposing government to high costs, does not create dependence on subsidies for sustenance and does not create an undesirable market and distributional effects.
The views expressed in this blog are personal.