The Reserve Bank has granted two new licenses for opening new banks to IDFC (Infrastructure Devp and Finance Corp) and the Bandhan Group, a microfinance lender. The 23 entities that could not bag the banking licences are awaiting the RBI's next move to give licences more regularly, virtually on demand. Those denied the license can take heart from the RBI’s statement that some entities which failed to qualify could apply in future or could apply for differentiated licences under the proposed framework.
Interestingly, an important condition for the license was that the applicant has to open at least 25% of all its branches in rural areas to promote financial inclusion.The widely expected license for India Post, despite its having a huge network covering practically the entire country did not happen as the RBI was doubtful about its financial experience and the technological capability to handle financial transcations. On the other hand, the license given to Bandhan, a little known group, was surprising
Directionally, there are enough indications that the RBI is shifting to an on-demand licensing system. A big problem with the current regime is that the regulatory discretion decides a bank's entry rather than the applicant's business needs and preparedness.