Mumbai : The Reserve Bank on Tuesday pitched for “stringent” entry norms for new players while suggesting four- tier structure for the domestic banking industry.

“It is important that the entry norms should be stringent so as to encourage entry by only well-qualified entities in order to improve the quality of the banking system and promote competition,” the discussion paper titled ‘Banking Structure in India – The Way Forward’ said.

The discussion paper is released at a time when the central bank is sifting through 26 applications seeking an entry into the fray.

On consolidation in the banking sector, the paper said, it has assumed significance considering the need for a few Indian banks to cater to global needs of the economy by becoming global players.

Consolidation in the banking sector may pave the way for stronger financial institutions with the capacity to meet corporate and infrastructure funding needs, it said.

Taking into account the pros and cons of consolidation, it has to be borne in mind that while consolidation of commercial banks with established synergies and on the basis of voluntary initiatives is welcome, it cannot be imposed on banks, it added.

Nevertheless, a measured approach is to be made both on consolidation and global presence even if attaining global size is not imminent, it noted.   On the issue of small banks versus large banks, the paper said small local banks play an important role in the supply of credit to small enterprises and agriculture and banking services in unbanked and under-banked regions in the country.

It said “differentiated licensing” for infrastructure financing, wholesale banking and retail banking is a “desirable step” and there is also a need to promote investment banking system.

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