‘Getting Bank Licence Will Not be a Cakewalk’

Norms on priority sector lending & substantial presence in rural areas will make opening new banks difficult: RBI deputy guv

Bagging a banking licence is going to become tough for corporates and finance firms with the Reserve Bank of India bent on pushing the financial inclusion goal. 
"It (getting a banking licence) will not be a cakewalk as it was in 1993-94," said RBI deputy governor KC Chakrabarty. "This time, the opening of (new) banks is not so easy because we have got PSL (priority sector lending) norms, which are mandatory, and 25% of the branches have to be opened in unbanked sectors," he said at a conference this week. 
A large number of non-banking finance companies have less then 10% presence in rural areas, while banking licence aspirants like L&T Finance, Mahindra & Mahindra Financial Services, Shriram Transport Finance and LIC Housing Finance have few branches in far-flung areas even though they service rural customers. 
According to the entry rules laid down by the RBI, applicants must have at least Rs 500-crore capital and must open at least 25% of branches in rural centres. "The central bank should not insist on applicants opening branches in rural areas, as we need to use technology to service these centres to keep costs under check," said the CEO of a nonbanking finance company. "To ensure the business model is cost-efficient and scalable, you need to use technology. Insisting on branch presence in rural areas makes the model unviable." 
Some companies say achieving 25% presence in these unbanked areas could be tough; even existing private sector banks are struggling to expand their footprint in such areas, they say. 
Shriram Transport Finance, the country's largest truck financier, has 530 branches and 350 rural touch-points. These touch-points are with one or two people working from home or oneroom office. "We do not have branches in rural areas, but we operate through rural centres that are connected to our branches," CEO & MD Umesh Revankar had earlier told ET. 
LIC Housing Finance, too, does not have branches in rural areas. It services its rural customers through 7,000 home loan agents and customer-relationship associates. Most of the company's 190 branches are in semi-urban or urban area