Wake up and smell the coffee, RBI warns banks in report

Mumbai: Proposing to go ahead with a new bunch of banks, such as custodian and wholesale banks, the Reserve Bank of India (RBI) today asked existing banks to rework their strategies, as nonbanking finance companies (NBFCs) were benefiting from their stress.

NBFCs, which depend on banks and mutual funds for their funding requirements, are performing better even as the central bank is harmonising the regulatory requirements between the two, the RBI said in its Financial Stability Report.

“A part of the churning in the domestic banking sector is probably benefiting the NBFCs even as the regulatory stance is to harmonise the regulation of NBFCs with that of banks,“ RBI said in the report. “Notwithstanding the increasing level of regulations for NBFCs, a significant share of bank finance to NBFCs, and the better performance of the latter suggest that banks, which are currently distressed, have a scope to improve their margins by reworking their strategies.“

A NEW SET OF BANKS

In a separate report, the RBI said it plans to come up with some more set of new banks. “The possibility of creating new kinds of differentiated banks, such as custodian and wholesale-financing banks, will also be explored,“ said the central bank's report on Trends and Progress in Banking. It will also expand its outreach to remote rural areas through registry . According to the RBI, the process of continuous authorisation (to set up new banks) will keep competitive pressure on existing banks and, with financial inclusion as an integral part of the proposed business plan of a given bank.

The RBI has already allowed new kinds of banks, such as the payments bank, with niche mandates to operate along with regular commercial banks. Earlier this year, many such entities, such as Airtel Payments Bank, became operational.