B Mahapatra: Implications of new bank licences
Inaugural address by Mr B Mahapatra, Executive Director of the Reserve Bank of India, at
the Post Graduate Students' Conclave on "Implications of new bank licences", at the National
Institute of Bank Management, Pune, 28 September 2013.
* * *
The assistance provided by Shri S.S. Barik, General Manager, RBI, is gratefully acknowledged.
1. I have great pleasure and privilege in associating myself with the conclave of the
Post Graduate Students of National Institute of Bank Management (NIBM), Pune. I am
indeed grateful to Director Allen C A Pereira for inviting me to deliver the inaugural address.
NIBM is a premier educational institution of the country in the field of banking and finance
and it is but natural for them to select a subject of topical interest for this conclave.
2. I understand that the objective of this conclave is to explore the implications of new
bank licences on the banking sector, and that, some of the eminent bankers and CEOs of
NBFIs, who have interest on the subject are also present to express their views, besides the
students of the Institute. I am sure the conclave will generate a lot of heat and throw much
light during its deliberations. I congratulate Director Pereira and his team for this.
The broad picture
3. Before I proceed with the subject, let me first present as a backdrop, a broad picture
of today's Indian banking and financial system:
 Indian financial system is bank dominated - banks' share at 63 per cent of total
assets of the financial system, is followed by insurance companies at 19 per cent,
Non-Banking Financial Institutions at 8 per cent, Mutual Funds at 6 per cent and
Provident and Pension Funds at 4 per cent, of the total assets of the financial
system.
 Even among the commercial banks, public sector banks have dominant number of
branches at about 67,000, followed by private sector banks at about 13,500 and
foreign banks at about 325 branches, constituting 83 per cent, 16.6 per cent and
0.4 per cent respectively of the total number of over 100,000 branches of banks.
Licensing of new banks - a historical perspective
4. Historically, commercial banks in India were privately held. However, post-
independence, from 1951, the Government of India adopted planned economic development
for the country through Five Year Plans. The economic planning envisaged state ownership
of the economic means of production to sub-serve the social welfare objectives of planning.
The commercial banks lagged in attaining the social objectives. It was felt that banks
controlled by business houses failed in catering to the credit needs of poorer sections of
society, such as farmers, craftsmen, etc. and to the credit needs of small and cottage
industries. Therefore, the Government of India nationalized 14 major commercial banks in
1969. All commercial banks with a deposit base over ₹ 500 million were nationalized then.
These banks had 85 per cent of bank deposits in the country, at that time. The second phase
of nationalization happened in 1980 when 6 more banks with deposits of ₹ 2 billion or more
were nationalized and the Government of India controlled around 91 per cent of the banking
business in India.
5. Subsequently, the Regional Rural Banks Act, 1976 was enacted to set up Regional
Rural Banks (RRBs) under the joint ownership of Central Government, State Government
and a sponsor bank, with a view to developing the rural economy by providing credit and
other facilities, particularly to the small and marginal farmers, agricultural labourers, artisans
and small entrepreneurs, and other productive activities in the rural areas. This led to setting
up of 196 RRBs across the country. However, no new licence was issued for setting up
commercial banks in the private sector till early 1990s.
6. India faced a serious balance of payments crisis in 1991. The Government of India
adopted a policy of economic liberalization. Therefore, the economic and banking policies
were to be reversed to suit the requirements of a liberalized economy. The banking sector
reform became inevitable to accelerate the pace of reforms to usher in a vibrant and
competitive economy. An expert Committee under the Chairmanship of Shri M. Narasimham
(a former Governor of RBI) was set up for spearheading the financial sector reform in India.
The Narasimham Committee inter alia,
(Committee on Financial Sector Reforms 1991)
recommended opening up of the banking sector to the private entrepreneurs to bring in
competition and efficiency, thereby paving the way for licensing of new commercial banks in
the private sector. Since then, the Reserve Bank licensed 10 banks in the private sector in
1993-94, and 2 more in 2002-04 under the guidelines framed in 1993 and 2001
respectively. There were 157 commercial banks [26 public sector banks, 20 private sector
banks, 43 foreign banks, 64 RRBs and 4 Local Area Banks (LABs)] as on March 31, 2013.
Need for new banks in the private sector
7. The Indian financial system has made impressive strides in resource mobilization,
geographical and functional reach, financial viability, profitability and competitiveness, since
nationalization of banks in 1969 and liberalization of economic policies since early 1990s.
With the penetration of banks into the nook and corner of the country, the average population
per branch office (APPBO) declined from about 64,000 in 1969 (as per 1961 census) to
about a fifth of that number - 12,400 now as per 2001 census.
8. Notwithstanding the vast network of branches, a sizeable segment of population,
especially the underprivileged sections of the society, have no access to formal banking
services. There still exists a gap between the ever increasing demands for financial services
of a growing economy and the available banking network to cater to the needs of the vast
areas, which are unbanked or under-banked even today. Despite the progress made over
the years since nationalization of banks in 1969, the problem of financial exclusion is
staggering. According to the findings of World Bank Global Findex Survey (2012), only
35 per cent of Indian adults had access to formal bank account and just 8 per cent borrowed
formally in the last 12 months. Only 2 per cent of adult population used bank accounts to
receive money (remittances) from members of family living elsewhere and 4 per cent
received payments from the Government.
9. Of the 600,000 rural habitations in the country, only about 40,000 had been covered
by the presence of brick and mortar branches of banks. With regard to financial access and
penetration, India ranks low compared with OECD countries. As of 2009, India had
6.33 branches per 100,000 persons whereas OECD countries provided 23-45 branches per
100,000 persons.
10. Presently, the share of public sector banks constitutes about 72 per cent of the total
banking assets in India. With the implementation of Basel III capital norms, banks will need to
raise more capital. As the Government's share in the capital of public sector banks is close to
the minimum of 51 per cent, raising of any additional capital by the public sector banks would
require the Government to infuse matching capital so as to maintain its minimum
shareholding at 51 per cent. Therefore, expansion of public sector banks into new areas
would depend on the ability and willingness of the Government to infuse capital.
11. The private sector banks have a share of about 18 per cent of the total banking
assets in India. The existing 13 old private sector banks, which have been in existence much
before the Banking Regulation Act was enacted in 1949, together with the 7 new private
sector banks, have been growing at 20 per cent. However, the performance of the old private
sector banks was not so impressive in the areas of branch expansion compared to their new
peers in the private sector. While 13 old private sector banks together had 5,555 branches,
7 new private sector banks had 7,857 branches as on March 31, 2012.
12. The Government of India has adopted financial inclusion as a state policy. In order
to achieve this objective, not only more number of branches, but also some more new banks
are necessary, as stretching of the resources of the existing banks to fill the gap may not
yield the desired results.
The genesis of the new bank licensing guidelines
13. The Union Finance Minister, in his Budget Speech for the year 2010-11 had stated,
"we need to ensure that the banking system grows in size and sophistication to meet the
needs of a modern economy. Besides, there is a need to extend the geographic coverage of
banks and improve access to banking services. In this context, I am happy to inform the
Honourable Members that RBI is considering giving some additional banking licences to
private sector players. Non-Banking Financial Companies could also be considered, if they
meet the RBI's eligibility." In this context, I would like to elaborate a little on the process
followed by RBI to formulate the policy for licensing of new banks in the private sector given
the implications for banking sector and the national economy.
The policy formulation process
14. In pursuance of the announcement made by the Honorable Finance Minister, the
Reserve Bank of India prepared a Discussion Paper on
Entry of New Banks in the Private
marshalling the international practices in licensing of banks, Indian experience and
Sector
the ownership and governance issues. RBI put out the Discussion Paper on its website on
August 11, 2010 for comments.
15. The Discussion Paper flagged various issues, primarily:
 What should be the minimum capital requirement for the new banks?
 What should be the minimum and maximum shareholding by the promoters and
other shareholders?
 What should be the limit on foreign shareholding?
 Whether industrial and business houses should be allowed to promote banks?
 Should Non-Banking Financial Companies (NBFCs) be allowed to convert into
banks and/or the promoters of NBFCs be allowed to promote new banks?
 What should be the business model of the new banks?
16. The Discussion Paper generated extensive debate in the general public, the media,
by the consultants, existing banks, industrial and business houses, Non-Banking Financial
Companies, Micro Finance Institutions, etc. The Reserve Bank also held discussions with
important stakeholders. In order to have transparency, the gist of comments received on the
Discussion Paper was placed on the RBI's website on December 23, 2010. Subsequently,
the draft guidelines on "Licensing of New Banks in the Private Sector" were framed taking
into account the experience gained from the functioning of the banks licensed under the
guidelines of 1993 and 2001 and the feedback and suggestions received in response to the
Discussion Paper and in consultation with the Government of India. The draft guidelines
were placed on the RBI's website on August 29, 2011 for comments.
17. The comments received on the draft guidelines were examined. The Reserve Bank
had indicated in the draft guidelines that certain amendments to the Banking Regulation Act,
1949 were under the consideration of the Government of India and final guidelines will be
issued and the process of inviting application for setting up of new banks in the private sector
would be initiated only after the Banking Regulation Act, 1949 is amended. It was essential
that the extant banking laws were amended to empower Reserve Bank of India to effectively
deal with new banks in the private sector.
18. After the amendments to the Banking Regulation Act, 1949 in December, 2012, the
guidelines were finalized and placed in the public domain on February 22, 2013. Following
the issue of guidelines, clarifications were sought by intending applicants, consultants, etc.,
on various aspects of the guidelines. Instead of replying to such queries on one-to-one basis,
the Reserve Bank considered it appropriate to invite queries from all concerned and to place
the clarifications to such queries in the public domain for the sake of equity and
transparency. The replies to the queries were placed in public domain on June 3, 2013.
Important features of the current policy
19. I feel it would be appropriate on my part to elaborate on some of the important
features of the guidelines that have generated a lot of debate, the rationale behind some
such policy prescriptions and to explain how these guidelines are different from earlier
guidelines. I will deal with the issues one by one.
Eligible entities to promote a bank
20. The first and foremost issue for the Reserve Bank was to decide who could be
eligible to promote new banks considering the broader objective of setting up of these banks,
its own experience of dealing with the promoters of the private sector banks in the past and
not the least, the lessons learnt from the recent global financial crisis. The Reserve Bank had
dealt extensively on this issue, including the issue of permitting industrial and business
houses setting up banks, in the Discussion Paper, as I mentioned earlier. The pros and cons
of allowing industrial and business houses had also been indicated in the Discussion Paper.
In response, RBI received divergent views.
21. In the context of permitting industrial and business houses to promote banks, I
would also like to mention that concerns had been raised by Prof. Joseph Stiglitz, the
eminent economist, Dr. Y.V. Reddy, former Governor, RBI, and also in the IMF Staff Report.
These concerns emanate from the likely conflict of interest in case industrial and business
houses were allowed to own banks. In the last two rounds of licensing of banks in the private
sector, as I mentioned earlier, industrial and business houses had not been allowed to
promote new banks, partly out of these concerns.
22. Given the divergent views on the issue of permitting industrial and business houses
to promote banks, we in RBI discussed and debated a lot internally. The international
experience in this regard was of no profound guidance, as it differed from country to country.
While countries like Australia, Brazil, Canada, Germany, France, Japan, UK, etc., do not
specifically restrict industrial houses from setting up banks, there are restrictions in countries
like USA and Korea. A few instances of banks owned by industrial houses are: Tesco Bank
(U.K.), Virgin Money (U.K), Banco Ahorro Famsa (Mexico), Banco Azteca (Mexico), Techcom
Bank (Vietnam), Transcredit Bank (Russia), MDM Bank (Russia), Alfa Bank (Russia),
Volkswagen Bank (Germany), Mercedes-Benz Bank (Germany), BMW Bank (Germany),
Siemens Bank (Germany), C & A Bank (Germany) and Alior Bank (Poland).
23. We, at RBI, believed that circumstances have changed a lot since nationalization of
the major private sector banks in 1969 and in 1980, and more particularly since India
embarked upon the path of economic liberalization since 1991. The banking and financial
system have evolved stronger and vibrant over the years. It has been deepened and
diversified. The overall economic transformation of India has also created a conducive
environment for further liberalization of banking policy.
24. In this backdrop, the final guidelines for licensing of new banks in the private sector
were formulated permitting entities/groups in the private sector that are "owned and
controlled by residents" and entities in public sector to promote banks through wholly owned
Non-Operative Financial Holding Company (NOFHC). The Promoters/Promoter Groups with
existing non-banking financial companies (NBFCs) were also permitted to apply for a bank
licence, subject to compliance with other parameters. The guidelines, by implication, permit
corporates to promote new banks.
25 Having said that, I would like to explain a little why RBI considered corporates for
setting up of new banks. The main reasons for allowing corporate houses are:
 Industrial and business houses have already been permitted to operate in other
financial services sectors such as insurance, mutual fund, etc., and are competing
with banks both on the assets and liabilities side.
Industrial and business houses have a long history of building and nurturing new

businesses in highly regulated sectors such as telecom, power, airports, highways,
dams and ports, etc.
 Industrial and business houses can be an important source of capital and can
provide management expertise and strategic direction to banks as they have done
to a broad range of non-banking companies and other financial companies.
 Equities of large industrial and business houses are widely held and are listed on
the stock exchanges and are subject to Companies Act, SEBI rules and regulations
on transparency, disclosure and corporate governance.
 Permitting industrial and business houses to own a limited number of banks should
not lead to undue concentration of control of banking activities as the Indian banking
system is largely dominated by public sector banks.
 Financial inclusion being the overall objective of the present bank licensing policy, it
was considered that industrial houses with their deep pockets could fill the gap, as
financial inclusion is a capital and technology intensive project.
 Industrial and business houses with presence across various sectors would not like
to lose their reputation compared to a pure individual promoter or financial services
player.
26. I have earlier spoken about the concerns raised in various quarters on the issue of
permitting industrial and business houses to own banks. Therefore, I would like to mention
how the new policy on banking licence addresses such concerns. We have built up adequate
checks and balances in the new guidelines, some of which are as under:
 The guidelines have spelt out the "fit and proper" criteria for the Promoters. The
Promoters/Promoter Group should be financially sound. They should have sound
credentials and integrity and also a successful track record for at least 10 years of
running business. Due diligence exercise will be carried out on the Promoters and
Promoter Group entities for ascertaining these aspects, and RBI may seek feedback
from other regulators and enforcement and investigative agencies, as deemed
appropriate.
The Promoters/Promoter Groups' business model and business culture should not

be misaligned with the banking model and their business should not potentially put
the bank and the banking system at risk on account of group activities such as those
which are speculative in nature or subject to high asset price volatility.
27. Now, I would like to explain how we addressed the issues relating to conflict of
interests.
 First, the guidelines provide that the Promoters/Promoter Groups, if found suitable
for setting up a bank, would be required to first set up a wholly owned
NonOperative Financial Holding Company (NOFHC), which will hold the new bank and
other regulated financial services entities of the Group. The objective is that the
Holding Company should ring fence the regulated financial services entities of the
Group, including the bank from other activities of the Group i.e., commercial,
industrial and financial activities not regulated by financial sector regulators and also
that the bank should be ring fenced from other regulated financial activities of the
Group. The NOFHC will be registered with the Reserve Bank as an NBFC and will
comply with bank-like corporate governance guidelines and prudential norms. The
capital structure of the NOFHC has also been laid down. Only non-financial services
companies/entities and non-operative financial holding company in the Group and
individuals belonging to the Promoter Group will be eligible to hold shares in the
NOFHC and at least 51 per cent of the total voting equity of the NOFHC should be
held by companies in the Promoter Group in which public hold not less than 51 per
cent of the voting equity.
 Secondly, in the interest of diversified ownership, the banks should be widely held.
Accordingly, it has been provided in the guidelines that the shareholdings of the
NOFHC in the bank would be diluted to 15 per cent over a period of 12 years. No
single entity or group of related entities, other than the NOFHC shall have
shareholding or control, directly or indirectly, in excess of 10 per cent of the paid-up
voting equity capital of the bank. Any acquisition of shares, which takes the
aggregate holding of an individual/entity/group to the equivalent of 5 per cent or
more of the paid-up voting equity capital of the bank would require prior approval of
RBI. Additionally, the bank is required to list its shares within 3 years from the
commencement of business to have diversified ownership and to ensure
accountability and transparency through adequate disclosures.
 Thirdly, with a view to mitigating conflict of interest and to ensure that there is no
self-dealing, the new banks will not be permitted to take any credit and investments
(including investments in the equity/debt capital instruments) exposure on the
Promoters/Promoter Group entities or individuals associated with the Promoter
Group or their NOFHCs. Further, the banks promoted by Groups having 40 per cent
or more assets/income from non-financial business will require RBI's prior approval
for raising paid-up voting equity capital beyond ₹ 10 billion for every block of
₹ 5 billion. The above prudential norms coupled with adequate safeguards would
ring fence the banking entity.
 Fourthly, with the recent amendments to the Banking Regulation Act, 1949, RBI has
been empowered to call for information relating to the business or affairs of any
associate enterprise of the banking company and also cause an inspection of its
books of account. The amended Act also provides adequate powers to RBI to
supersede the Boards of the banks to secure proper management.
Minimum capital required for the new bank
28. The minimum capital requirement for the new banks is another issue on which views
were divergent. The international experience also differed across countries. The capital
requirement should neither be too low to achieve the goals of financial inclusion nor too high
to become an impediment for those who are committed to the goal. We thought ₹ 5 billion
would be a reasonable amount and the same was prescribed in the guidelines.
Foreign shareholding in the new bank
29. Currently, the foreign shareholding in the private sector banks is capped at 74 per
cent as per the FDI policy of the Government of India. With foreign shareholding of more
than 50 per cent, a domestic bank becomes a foreign owned bank. Therefore, allowing the
new banks to be foreign owned from the very beginning may not be a good idea, as RBI
operates a separate window for foreign banks in India and pursuing the subsidiarisation of
foreign banks' presence in India from the perspective of strengthening financial stability. It
was, in that context, considered appropriate to stipulate a lower limit of 49 per cent for the
first five years, after which the extant FDI limits would kick in.
Corporate governance and exposure norms
30. Corporate governance and prudential exposure norms are important aspects of new
bank policy; more so, in the context of allowing corporates to own banks. The guidelines for
licensing of new banks deal on the subjects extensively. The guidelines mandate the NOFHC
to have at least 50 per cent independent directors on its Board and they should have special
knowledge or practical experience in economics, finance, accountancy, banking, insurance,
law and some such fields. The NOFHC shall not have any credit and investment (including
equity/debt capital) exposure to any entity belonging to the Promoter Group except those
held under it and the new bank cannot take any credit and investment (including investments
in equity/debt capital) exposure on Promoters/Promoter Group entities or individuals
associated with the Promoter Group or the NOFHC.
Financial inclusion
31. One of the main planks of licensing policy is to assess how the banks would serve
public interest. The guidelines require the promoters to address how the bank proposes to
achieve financial inclusion, comply with the priority sector lending targets and minimum
25 per cent branch presence in rural unbanked centres. The project report and the business
plan of each applicant will be evaluated to make an assessment about these aspects.
Fairness and transparency of licensing process
32. The fairness and transparency of the licensing process are no less important given
the enthusiasm shown by the corporate houses, NBFCs and public sector entities to get
banking licence. I may also add that there were suggestions from certain quarters for
auctioning of new bank licences. No doubt, banks are for public good. But, banks are special.
They are highly leveraged financial institutions. They are the conduits for monetary policy
transmission and constitute the core of payment and settlement system. They accept
uncollateralized deposits from members of public and their deposits are insured. The
purpose of issuing new bank licences is to serve public interest. Auctioning of bank licences
is unheard of in any jurisdiction. Nevertheless, issues relating to fairness and transparency
were to be dealt with. It was, therefore, decided to place the names of the applicants for bank
licences on the RBI's website after the last date of receipt of applications. Accordingly, RBI
disclosed the names of 26 applicants. The applications are being subjected to a multi-layered
scrutiny internally by the Reserve Bank followed by scrutiny by a High Level Advisory
Committee that would comprise eminent persons with impeccable integrity and experience in
banking, financial sector and other relevant areas. The High Level Committee will make
recommendations to the RBI and the final selection will be that of the RBI.
Implications of new bank licensing
33. In the above context, I would like to share my personal views on the implications of
new bank licensing. The new bank licensing under the current guidelines will have
implications for the Promoters in particular, who get the licence, for the banking industry in
general, for the economy, for the common man, and also for the Reserve Bank, as regulator
and supervisor for the banks. I will discuss these implications one by one.
Implications for the promoter
34. As I mentioned earlier, the Promoters/Promoter Group have to first set up a
nonoperative financial holding company (NOFHC) for holding the new bank and other regulated
financial services entities, in which the Promoters/Promoter Group have significant influence
or control.
 First of all, for setting up of NOFHC, the Promoters/Promoter Groups have to
identify companies which will hold the voting equities of the NOFHC. As the
guidelines require that at least 51 per cent of the voting equity of the NOFHC should
be held by a company/companies in the Promoter Group, in which public hold not
less than 51 per cent of the voting equity, the Promoters have to necessarily dilute
their shareholdings in such companies to comply with the requirement, if there are
no such companies for the present.
 Secondly, the Promoters/Promoter Groups have to re-organize their business
structure in respect of the financial services that they undertake through the Group
entities. They have to move all the regulated financial services entities, in which they
have significant influence or control, into the fold of NOFHC. What this means is
that, they cannot hold the voting equity of the financial services entities directly, but
only through the NOFHC. This would require some amount of restructuring of their
financial services business.
 Thirdly, Promoters/Promoter Groups currently undertaking various types of lending
business through non-banking financial companies (NBFCs) would have to transfer
the lending business to the new bank. As per the guidelines and the clarifications
issued, lending activities must be conducted from inside the bank. But, para-banking
activities, such as credit cards, primary dealer, leasing, hire purchase, factoring etc.,
can be conducted either inside the bank departmentally or outside the bank through
subsidiary/joint venture/associate structure. Activities such as insurance, stock
broking, asset management, asset reconstruction, venture capital funding and
infrastructure financing through Infrastructure Development Fund (IDF) sponsored
by the bank can be undertaken only outside the bank. This would require some
amount of demerger of business for Groups that have NBFCs for lending business.
They have the option of converting such NBFC into the new bank, provided all the
activities that the NBFC currently undertakes could be undertaken by the new bank
departmentally. Otherwise, activities that banks are not permitted to undertake
departmentally have to be demerged/divested into other entities or wound down.
 Fourthly, the Promoters/Promoter Groups converting the NBFCs into the new banks
or transferring the business from NBFCs into the new banks will have to comply with
the cash reserve ratio (CRR), statutory liquidity ratio (SLR) and priority sector
lending (PSL) targets in respect of the liabilities and loan assets taken over from the
NBFCs, once the new bank commences its business.
 Fifthly, the Promoters/Promoter Groups have to comply with the requirement of
opening of 25 per cent of their total number of branches in unbanked rural centres.
The rule will apply in case of conversion of existing NBFCs into new banks, and
therefore, the Promoters/Promoter Groups have to plan their business accordingly.
 Sixthly, the bank and financial entities held by NOFHC shall not have any credit and
investments (including investments in the equity/debt capital instruments) exposure
to the Promoters/Promoter Group entities or individuals associated with the
Promoter Group or the NOFHC.
35. The implications for the Promoters/Promoter Groups discussed above would vary
depending upon the number of regulated financial services entities in the Group, the size of
their business and their present business structure. Considering these implications, RBI has
extended the validity of "in-principle" approval from 12 months to 18 months from the date of
issue, for the Promoters/Promoter Group to comply with all such matters during this time, but
before the banks commence the business.
Implications for the banking industry
36. A few new banks would enter the banking industry after a decade with the last such
licence issued in 2004. However, they would be the game changer in many aspects. I would
like to mention how their presence would have implications for the banking industry.
 First and foremost, with the setting-up of new banks under the NOFHC, financial
holding company (FHC) structure will be introduced in the banking industry for the
first time. This will be a marked departure from the present bank-subsidiary model
under which Indian banks operate. The Government of India is also contemplating a
holding company structure for public sector banks. The existing private sector banks
are expected to follow suit, in line with the Shyamala Gopinath Committee
recommendations.
 Secondly, the new banks will bring in new business model, new products, new
processes, new technologies, etc. The level of productivity, efficiency and customer
service would be expected to be higher. The existing banks may have to re-orient
some of their businesses, technologies, etc.
Thirdly, the existing banks would face competition, both on their assets and liabilities

side of the balance sheet, from the new generation banks and have to devise ways
to withstand the competition or they may lose their existing customers, who may
move away to new banks. Banks that cannot compete would be vulnerable to
acquisitions/take over. Possibility of voluntary amalgamation amongst some banks
cannot be ruled out.
 Fourthly, the public sector banks, as a group have a dominant market share of about
72 per cent. They are likely to shed some weight over time and the share of private
sector banks as a group would increase.
 Fifthly, Indian financial system is bank dominated. The financial system will be
broadened and deepened with the entry of new banks in the private sector. The
market share of the banks, as a segment, in the financial system's assets would
increase over non-banks, if the business houses with major NBFCs come out
successful in getting bank licences. In that case, they would convert NBFCs into
new banks or transfer the lending activities of the Group NBFC into the new bank,
as per the requirement.
Implications for the economy
37. Finance is fuel for the economy. Banks be