New Bank Licenses and RBI

The need for new banks to increase competition and further spread of banking to cover more population particularly in unbanked areas is genuine and the recent move of RBI to issue new licenses is therefor welcome. The selection of banks for grant of new licenses all said is a difficult process although the guidelines have been very clear and there is no scope for ambiguity.But how to keep the corporates engaged in broking and real estate business away from getting licenses is a formidable task and the RBI will have a tough time in taking the decision. The risks in granting these corporates licenses are systemic and can have a adverse impact in maintaining the Financial System's stability. Both real estate and stock market deals are highly volatile and speculative in nature and the Corporates have the backing of high and mighty to prevent RBI in enforcing its regulatory prescriptions on them. Further financial inclusion is the desire and inevitable need of the Govt, RBI and the people , these corporates once given Bank Licenses will never be able to ensure compliance with this, as even the nationalised banks regional rural banks and private sector banks have miserably failed to achieve Financial Inclusion with all their rural spread and continued force from RBI. Once the license is given to such entities, withdrawal of the same will be a difficult process and minimising the spread of risks in the economy will become a task by itself. RBI has to think million times before the licenses are issued to Broking and real estate entities.( This comment appeared in Times of India dated 26/2/13.)