The mandatory licensing requirement for Indian banks to open branches may be done away with. The department of financial services is taking up the matter with the Reserve Bank of India (RBI) as banks are no more shying away from opening branches in semi-urban and rural areas.
The likely relaxation, however, will not apply to foreign banks.
“There is a case made out for dispensing with the mandatory licensing requirement with certain transparent safeguards to ensure an equitable distribution of bank branches in the urban and rural areas,” an official source said.
RBI might make it mandatory for banks to open one rural or semi-urban branch for every new urban branch that is opened, added the source.
Currently, opening of new branches and shifting of existing ones are governed by the provisions of Section 23 of the Banking Regulation Act, 1949.
Under the provisions, without the prior approval of RBI, banks cannot open a new place of business in India or abroad or change the location. An amendment to the Act may be required to relax the licensing rule.
Since 2006, RBI has approved the opening of new branches only on the condition that at least half of such branches are opened in under-banked areas as notified by the regulator.
Citing a recent speech of RBI Governor Y V Reddy that “many banks now find that branches in semi-urban and rural areas are also commercially viable”, official sources said the entire policy followed by RBI on opening new branches needed to be revisited.
At present, RBI gives aggregate approvals for opening branches and ATMs annually through extensive consultation with each individual bank and authorisations are valid for one year.
If RBI wished to keep an overall cap on the number of bank branches that were opened annually by each bank, the number of bank branches that were opened annually by each bank could be defined as a percentage of their existing number of branches, the source said.
Many public and private sector banks have been demanding the removal of the licensing system, which comes in their way to expand organically in a rapid manner. The department has sought views from public sector bank chiefs in this regard.
Currently, there around 65,000 bank branches in the country, of which 50,000 belong to 28 public sector banks.
The likely relaxation, however, will not apply to foreign banks.
“There is a case made out for dispensing with the mandatory licensing requirement with certain transparent safeguards to ensure an equitable distribution of bank branches in the urban and rural areas,” an official source said.
RBI might make it mandatory for banks to open one rural or semi-urban branch for every new urban branch that is opened, added the source.
Currently, opening of new branches and shifting of existing ones are governed by the provisions of Section 23 of the Banking Regulation Act, 1949.
Under the provisions, without the prior approval of RBI, banks cannot open a new place of business in India or abroad or change the location. An amendment to the Act may be required to relax the licensing rule.
Since 2006, RBI has approved the opening of new branches only on the condition that at least half of such branches are opened in under-banked areas as notified by the regulator.
Citing a recent speech of RBI Governor Y V Reddy that “many banks now find that branches in semi-urban and rural areas are also commercially viable”, official sources said the entire policy followed by RBI on opening new branches needed to be revisited.
At present, RBI gives aggregate approvals for opening branches and ATMs annually through extensive consultation with each individual bank and authorisations are valid for one year.
If RBI wished to keep an overall cap on the number of bank branches that were opened annually by each bank, the number of bank branches that were opened annually by each bank could be defined as a percentage of their existing number of branches, the source said.
Many public and private sector banks have been demanding the removal of the licensing system, which comes in their way to expand organically in a rapid manner. The department has sought views from public sector bank chiefs in this regard.
Currently, there around 65,000 bank branches in the country, of which 50,000 belong to 28 public sector banks.
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