The Reserve Bank's decision to allow new players in the banking sector would result into improvement in efficiency, increase in capital base to meet the credit needs of the economy and generate huge employment opportunities, says a survey by industry chamber Federation of Indian Chambers of Commerce and Industry.
According to the survey which drew responses from existing banks, NBFCs, corporate and industrial houses and other stakeholders, the setting up of new banks is considered significant in view of the fact that only 35 per cent of the country's population have formal bank accounts as compared to an average of 41 per cent in other developing economies.
Eighty-eight per cent of the respondents felt that Reserve Bank of India's condition for an applicant applying for a licence to set up at least 25 per cent of its branches in unbanked area with a population of less than 9,999 will play a significant role in expansion of banking services and hence help in increasing financial inclusion.
Nearly 70 per cent of India's population lives in villages, it said, adding that a vast majority of approximately 650,000 villages do not have a single bank branch thus leaving a huge chunk of rural population in the hands of money lenders.
The total number of branches in rural India stood at 37,471 and the total banking outlets in villages after taking into account the branches, business correspondents and other modes was just 1,81,753 (as on March, 2012), it said.
The survey notes that they can bring in the new processes and technology and will play a significant role in driving competition.
First of all, it will also encourage existing players to improve efficiency.
Secondly, new players with sound financial base will bring in the much needed capital that is required to support the credit needs of the economy and they will generate huge employment opportunities, it said.
Sixty-nine per cent of the respondents felt that corporate or industrial houses should be given licences, while the remaining 31 per cent felt that they should not be allowed to operate as banks.
Irrespective of the fact that the new banks will help in consolidation of the banking sector, 58 per cent of the total respondents felt that new banks should start afresh completely while only 42 per cent of the respondents felt that new banks should acquire existing smaller banks and grow.
As many as 30 per cent of the respondents felt that the time line for reviewing a new bank application should be 6-12 months.