Monday, June 03, 2013

How much would a new bank license cost?

The RBI will soon receive applications for bank licenses. Industrial houses will be vying with pure financial firms to get a license. The Economist quotes a CEO as saying that the asking price for a license is $75 mn (approx Rs 350 crore).

Such talk may be entirely speculative but it tells you why, in scam-ridden India, it is not sensible to allow industrial houses to get into banking (as the Economist itself argues). There will be attempts to influence the award of licenses and there will be attempts to influence regulation once industrial houses get into banking. Large industrial houses represent a concentration of economic power by themselves; add to these a banking activity and they begin to acquire a degree of clout that is unwholesome.

The Economist indicates the approach that the next RBI governor should use in awarding bank licenses:
  .... he should issue as many licences as possible without compromising standards: to new entrepreneurs who want to use technology to serve the poor; to decent financial firms that are not part of conglomerates; and, perhaps, to industrial firms with diverse ownership. That must be combined with a shake-up of state banks, and a more open attitude to foreign firms and to the mobile banking technologies that have taken Africa by storm. All that would help many millions get their hands on bank accounts, without concentrating even more economic power in the palms of a few.

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