Amid the lengthy clarifications issued by the central bank on new bank licences, Reserve Bank Deputy Governor K C Chakrabarty today said customer service in the banking industry will be better if more banks come in as it will drive competition.
"Why we are suffering is that we have not allowed new banks to come in. If new banks come in, then many of our problems on the customer service front will be solved," Chakrabarty said addressing an 'open house' organised by Moneylife here. He also said the number of homegrown domestic banks is less than the number of foreign banks present in the country. "So, one demand should come from everybody that more banks should come in. If you allow more banks, then consumer service will be better," he added. Interestingly, the state of the DG who overseas banking services at the central bank, comes on a day when it released a detailed clarifications the new bank licences, which many analysts felt only limits more number of players entering the fray apart from further delaying the process.
The last time a new private bank was allowed to open shop was in 2004 when it issued licence to Yes Bank. The deputy governor also noted that it is the endeavour of the central bank to increase the penetration of banking system in unbanked areas. Reacting to the clarification released today by the RBI on new banking licences, Chakrabarty said, "We require more banks, that's why we are asking for applications."
He, however, declined to give the number of banking licences that would be issued saying it would depend on the number of applications. On the Cobrapost expose and subsequent investigation into alleged KYC violation, Chakrabarty said, "AML or KYC systems are foolproof, but transactional error could happen. Our system is robust, though there may be laxity in finding out the error and taking corrective actions." Earlier in February, news portal, Cobrapost had alleged violation of money-laundering norms by many private and public sector banks in a sting operation. On the proposal to increase penalty on erring banks imposed by RBI, Chakrabarty said that law makers would decide on this matter.