An increase in the number of banks alone is unlikely to expand financial services to un-banked areas, said K V Kamath, chairman of ICICI Bank.
“For the new banks, to set up and grow their branches and grow their reach in terms of inclusion is a long way off. So, I would not think that (financial inclusion) is going to happen immediately (by having more banks in the country),” Kamath told Business Standard here on Thursday.
Former finance minister and President Pranab Mukherjee in his Budget speech for 2010-11 had said additional banking licences would be given to private sector players to “extend the geographic coverage of banks and improve access to banking services”. The Reserve Bank of India has already come out with draft norms on new bank licensing.
Kamath said the focus needs to be on making accounts more operational for effective financial inclusion. “Banks are reaching out to the masses and accounts are being opened every day. I think the immediate thing we need to figure out is how to get money into these accounts and how do you create lending opportunities (in rural areas). These are product-related challenges that banks are facing,” he said.
Deposit and credit growth
Kamath noted there was a slowdown in both corporate and retail savings. “The question is, where is this money going? A part of it, I think, is going to meet aspirational needs of the people and another part is going to meet their servicing needs.... I think the corporate savings are being used for their businesses.”
Kamath said the slow growth in corporate lending was on account of reduced activity in the infrastructure space as companies are still awaiting clarifications on the policy front. He, however, remained confident that the so-called paralysis on policy reforms would soon be lifted.
“I think by and large you will not hear the phrase ‘policy inactions’. Yes, it could have been done a few months back. But I think we have to now take it from here onwards,” he said.
Capital and overseas expansion
Kamath said Indian banks would not find it difficult to raise funds to meet the new Basel-III capital rules. “If you look at the situation five years ago, ICICI Bank at one go raised something like Rs 20,000 crore. So, the overall number is not difficult.”
RBI recently said Indian banks would need around Rs 5 lakh crore additional capital to meet the new norms.
According to Basel-III norms, Indian banks need to maintain a minimum capital adequacy ratio of nine per cent in addition to a capital conservation buffer, which will be in the form of common equity at 2.5 per cent of the risk-weighted assets.
In other words, banks’ minimum capital adequacy ratio must be 11.5 per cent according to Basel-III norms. Indian banks are currently required to have a capital adequacy ratio of at least nine per cent.
RBI has also said the common equity in tier-I capital must be 5.5 per cent of risk-weighted assets and the minimum tier-I capital adequacy ratio must be seven per cent instead of six per cent. The new rules will come into effect from January 2013, and banks will have to implement the rules by March 2018.
On Indian banks’ global ambitions, Kamath advised caution against going too fast as the macroeconomic environment overseas continues to remain uncertain. “I think, at this point of time, caution is more advisable than speed because the global market place is too volatile,” he added.
