The Role of New Banks in Shaping up Next Generation Banks

The paper seeks to trace the benefits of nationalization of banks, entry of new private banks as part of banking sector reforms from 1993 onwards and the spate of transformation of banks witnessed in the last over four decades. It is observed that banks have expanded fast in terms of business volumes, outreach, and application of technology and in delivering competitive quality of services. The nationalized banks have touched the lives of many villagers through socio economic developmental schemes that could bring prosperity to millions of households. The government sponsored schemes were routed through banks and availability of subsidies was also ensured. Following the bank reforms initiated in 1991, a set of new generation private banks (NGPBs) equipped with the state of the art technology joined the banking space transforming the delivery models of customer service. The set of NGPBs manifested under the new licensing norms in 1993 have brought about stiff ‘competition’ and created a ‘quality differentiation’ facilitating the pace of transformation of banking system. In a bank led economy like India, the efficiency of banks has a direct bearing on the growth of economic enterprise. The financial intermediation has a critical role in speeding up the economic growth. Taking cue from the proven global experience, financial inclusion has been taken up on a mission mode to connect masses with the formal banking system. In a country with 1.2 billion people, the infrastructure of banking system in India is found to be inadequate to meet the long term aspirations of accomplishing inclusive growth. Hence another set of new private banks is felt necessary. Accordingly, after intense interactive consultations with the government and other stake holders, RBI has issued a set of new guidelines for licensing of banks in Feb 2013. It has opened up prospects for entry of new entities in the banking space. The entry of more number of new banks can definitely be of immense use in implementing the financial inclusion thus accelerating economic growth. Hence, permitting new private banks is a strategic move to upgrade the standard of banking and taking it close to the masses. It will reduce the unbanked areas and integrate the people with the banking system much faster. In the long run, it will enable the banking system to transform the quality of service and bring smiles to many of its customers.