It’s a welcome measure. If this initiative is coupled with innovation, then it’s going to provide hybrid varieties of financial products for corporate as well as individual customers. Caution, however, is essential as far as this sector is concerned, cause, corporate financial intellect, driven by greed, has the ability to blur the line between innovation and undue speculation. Ultimately that leads to crash. History has many examples.
Coming back to sources of funds, by what ever name we call, all the financial sources would fall into two broad categories, that is to say, equity or debt. In other words, either own or loan funds. One needs to access Capital markets for equity and debt markets for debt. Though, our capital markets are going strong, compared to these markets, the debt market has neither attained that maturity nor has liquidity to that extent.
This has happened, due to so many reasons. One of the prominent reasons amongst these is the extinct of NBFCs (Non Banking Financial Companies) and the other one, is lack of retail lenders faith in the concept of deposits. The RBI, the apex body to regulate this sector, was successful in killing this sector. When some corporate misused this concept and resorted to unfair trade practices, the RBI, instead of setting things right, acted in haste, had shut the door altogether. Consequently, the genuine corporate, have lost one predominant avenue for raising short term funds. On the other hand, the retail lenders have, due to lack of faith in the system, refrained from depositing money either with NBFCs or with corporate altogether. In the essence, one lucrative concept has lost its sanctity.
The present initiative falls in the same domain.
We firmly feel, RBI will not, this time, as far as licensing of these private banks are concerned, do anything that kills the avenue itself. The discussion paper is out for all of us to contribute. It has points worth discussing. Firstly, deciding upon the adequacy of capital norms and quantum of foreign equity. Secondly, we need to carefully analyse whether this move really reduces the transaction cost, which is, again, one of the primary objective. Thirdly, how this move will impact bad loans. And so on so forth.
We will make our own squirrel’s contribution to it.
