Finance ministry preparing new policy road map for banking sector

NEW DELHI: The finance ministry is working on a new policy framework for the country's banking sector that will provide a clear roadmap for regional rural banks, cooperative banks and other regional banks to grow to the next level.

The North Block has already begun discussion with the central bank on the framework that will prescribe profit, capital adequacy, size and any other condition it deems fit for such banks to graduate into full-fledged banks. "We have written to the RBI asking for a clear roadmap for the smaller banks that want to expand," a senior finance minister official told ET.

Experts say such a policy can ensure that these entities have clear performance benchmarks fitted well into their own growth plan and hope to grow.

"A clear policy will help incentiwise better players.. It would improve access to banking in states and regional centres that have low credit penetration now," said Vibha Batra senior vice president, co-head, financial sector ratings, ICRA.

The government had in its 2010-11 Budget announced its intention to allow more bank licences, but progress has been slow because government has been unable to amend the banking regulation act.

The Reserve Bank of India is ready with the new bank licensing rules but is waiting for the changes in the banking law to be approved by parliament that will and empowers to supersede a bank boards.

In such a situation, the finance ministry feels a well laid out growth map for the smaller banks can help the cause of financial inclusion just as well. The finance ministry is already begun work on Regional Rural Banks (RRBs) attaining some traction in size in their geographic region.

The ministry has said that geographically contiguous RRBs sponsored by different banks within a state could be amalgamated with single sponsor bank to help optimizie use of modern technology and give adequate muscle to expand coverage in the region.

RRBs, are jointly owned by the centre, the state government and the sponsor bank. Out of the 82 RRBs,81 have already switched to core banking solutions and national electronic fund transfer system. The cabinet last Thursday cleared 632 crore worth capital infusion into RRBs.