Banks are positive on some of the steps taken by the Reserve Bank (RBI). They are also positive on differential banking and the need to create a central repository for corporate exposure.
There are good number of banks which are ready and qualify for conversion as a regular commercial bank.
Bank of Baroda
After taking over as the Governor of the Reserve Bank (RBI), Raghuram Rajan introduced measures to restore confidence in the banking sector such as on-tap licensing (issuing licenses without much of red tape).
Reacting to these steps, BD Narang, ex-chairman of Oriental Bank of Commerce says that the country does not have a shortage of banks, but boutique or specialised ones are few. Such kind of banks will introduce new products and develop new delivery channels, he told CNBC-TV18.
SS Mundra, chairman of Bank of Baroda echoes Narang's thoughts on no dearth of banks in India. But, he also says that there should be space for on-tap licensing and new entrants must assess their competitiveness.
The RBI’s also suggested to have a central repository (database) where all banks can share their corporate exposures. Mundra is positive on the move and feels that it will be good for banks to take a credit view of corporates. Narang too felt that the move was good as most corporates are currently over-leveraged. The RBI should also look to fix capital adequacy ratio, he adds.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Can on-tap licenses change the face of banking may be in the next five years when there is going to be a regular stream of new entrants?
Narang: I have slightly different views on this subject. We don't have shortage of banks in India. We lack strong, viable banks. Imagine the number of urban corporative banks and regional rural banks you have. If they are corporatised and listed, what kind of stock will be available to you, already with standing of 5-20 years?
Yes, on-tap licenses will take away the hassles of opening a new bank, but what attracts me most are boutique banks. We don't have many specialized organisations having domain knowledge. Any number of boutique banks with a lot of domain knowledge will be a great help. They will be able to bring new products and develop new delivery channels. New mechanisms can be evolved.
For example, there is a bank in New York where you can put your change. That amount immediately gets credited to your account. You have to keep it for three days before you withdraw and there are no charges. The bank has an asset base of USD 6 billion. So, technology along with newer products is a great help. It will increase competition.
Q: I don't know if differentiated licenses will be interpreted that way. What if there were some of these private sector entities which only offered investment banking services or only forex services? It is a high margin business and you don't have to do priority sector. Would you be happy if some sort of an arrangement came in?
Mundra: To some extent, I agree with BD Narang that we have enough banks in the country. There are also good number of banks which are ready and qualify for conversion as a regular commercial bank.
Having said that, in a growing market like India, it would not be a bad idea to at least keep that provision alive than doing and exercise once in a decade through elaborate process. But, being on-tap doesn’t mean the tap is continuously flowing. Our tap is very frequently put on.
Anywhere in the world, whether it is on-tap or not, history shows licenses are not getting issued every other day or month. It will not be right to believe that if licenses are available on-tap, it means there is very fast or unending supply of banks in the system.
Ultimately the whole requirement, absorbing capacity and the banks which will come, have to assess their own competitiveness in a landscape which is ever expanding.
On differentiated licensing, it allows room for specialisation, but to believe that there will be a complete polarisation and that state run banks would end up only doing the priority sector lending and all other fee related businesses will go to the differentiated banking. In a real market place it does happen that way.
The clients would be happy to access all their banking needs from a single source as there are strong inter-linkages. In our growing economy and with the technology being a very strong capacity in the country, there is room for every kind of player, but and still make it economical; this is what I firmly believe.
Oriental Bank stock price
On November 21, 2014, Oriental Bank of Commerce closed at Rs 279.65, up Rs 6.15, or 2.25 percent. The 52-week high of the share was Rs 377.30 and the 52-week low was Rs 160.50.
The company's trailing 12-month (TTM) EPS was at Rs 39.71 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 7.04. The latest book value of the company is Rs 447.91 per share. At current value, the price-to-book value of the company is 0.62.
READ MORE ON banks, bank of baroda, oriental bank of commerce, banking sector, differential banking, narang, mundra, on tap licensing, bank shortage
Set email alert for
ADS BY GOOGLE
video of the day
Be careful while betting on midcaps; like Kotak: Dimensions