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The new bank aims to reduce gender bias by offering loans to women-run businesses and self-help groups (SHGs), which is a core business of most microfinance companies in the country.
"There is no bank that exclusively serves women. Can we have a bank that lends mostly to women and women-run businesses, that supports women SHGs and women's livelihood, that employs predominantly women, and that addresses gender related aspects of empowerment and financial inclusion? I think we can. I therefore propose to set up India's first women's bank as a public sector bank," Chidambaram said during his budget speech today.
Microfinance institutions felt that the new bank will intensify competition and severely affect their businesses. Some micro-lenders also compared the move with Andhra Pradesh government's decision to set up all-women Sreenidhi Bank that offers loans to women SHGs and aims to keep the borrowers away from private microfinance companies.
"It seems the central government has taken a cue from the state government. The budget has not offered us any relaxations on service tax and remained silent on the progress of the central act for microfinance institutions. Instead, we will now have to compete with a new bank that will be financially stronger than us. It may threaten our existence," a chief executive officer of a Hyderabad-based microfinance company said.
The government will provide Rs 1,000 crore as initial capital of the new bank and expects the necessary approvals, including the banking licence, by October, 2013.
The women's bank will not be covered by the Reserve Bank of India's (RBI) new bank licensing guidelines. "If you see the finance minister's speech, this all women bank will be set up as a public sector bank. Therefore, there is no need for separate guidelines. (Also) it is not being covered under the new bank guidelines," Anand Sinha, deputy governor of RBI, said.
Bankers and industry analysts felt that the first women's bank in the country will probably offer similar products and services as existing banks. "If women are running the bank they will probably be able to reach out to women better. Economic empowerment of women has multiplier effect on the economy. Other than that I think the products and services will be more or less similar to existing banks," said a banking analyst with a global consultancy firm.
Some microfinance companies, however, were hopeful that the new bank may offer additional funding opportunity for micro-lenders. "Existing banks do not have large number of branches in remote areas. Doubts remain whether the new all women's bank will have significant branch presence in rural centres. We are actually hoping that the new bank will be acquiring securitised portfolios from us. That will give us an additional source of funding," a chief financial officer of a microfinance company said.
