The Reserve Bank of India will reportedly issue four new banking licenses as part of a push to bring more of the growing country into the formal banking system.
The RBI is likely to turn to non-banking finance companies as recipients of the licenses, the Wall Street Journal said, citing people familiar with the process.
“The government doesn’t favor corporates which don’t have finance as one of their main businesses,” the Journal quoted one of the people.
As a result, the winners are more likely to be the Tata and Birla groups — which have large finance activities.
Only about half of India’s 1.2 billion people currently use the formal banking system. The RBI is seeking to add new banks to increase competition for the business and reduce costs for depositors.
The banking system is dominated by 26 state-run lenders, which control almost 75% of total assets. Twenty-one private sector banks account for about 20%-22% of assets while the remainder is split between some 34 foreign banks.
The RBI will soon issue draft guidelines on the new private banking licenses and will seek comments from all stakeholders, RBI Deputy Governor Anand Sinha told reporters at a conference in Mumbai.
The PowerShares India ETF (PIN) tracks performance of the biggest companies in the market.
And HDFC Bank (HDB) and ICICI Bank (IBN) are already traded in New York as well as Mumbai. They might not welcome the competition.