N S Vishwanathan

“Competition is very important… We have licensed 11 payments banks, 10 small finance banks. That adds to competition and will possibly improve the credit culture,” Vishwanathan told an event organized by the Sebi-run NISM. (Source: Twitter)

RBI’s newly appointed deputy governor N S Vishwanathan said the entry of new players in banking space should improve the credit culture.

“Competition is very important… we have licensed 11 payments bank, 10 small finance banks. That adds to competition and will possibly improve the credit culture,” Vishwanathan told an event organized by the sebi-run NISM.

Mr. Vishwanathan said the Reserve Bank has issued the draft guidelines on universal bank licensing and soon the final norms will be issued and that “… more players in that space will mean more competition.”

In Sep 2015, RBI had given in-principle approval to 10 companies for setting up small finance banks including Ujjivan Finance, Au Financiers, ESAF Microfinance, Janalakshmi Financial, Capital Local Area Bank, Equitas Holdings, Disha Microfin, RGVN Microfinance, Suryoday Microfinance and Utkarsh Microfinance. Capital Small Finance Bank is running their operations.

The payment bank licensees include RIL-SBI, Airtel-Kotak Mahindra, Vodafone mPesa, Department of Posts, Aditya Birla Nuvo, Fino Paytech, Paytm and NSDL. Three companies backed out later namely  Tech Mahindra, Sun Pharam-IDFC combine and Cholamandalam Finance, citing changed business paradigm.

Mr. Vishwanathan mentioned regarding the necessity of sound credit culture to build a good credit portfolio. He said “The trust in a bank is going to be a function of how good it overhauls credit qualities”.

He further mentioned about the present scenario where there is an existence of stressed assets and the need for improvement in lending practices in banks, introspection on a good credit culture of each bank would be a useful exercise.

“This is important in the public sector banks because they have the largest share of stressed assets,” he mentioned.

The raise of Bank’s gross NPAs from 5.1 per cent in September 2015 to 7.6 per cent in March 2016, while the total stressed assets jumped to 14 per cent i.e. 8 Trillion INR as of March 2016. According to Mr. Vishwanathan, banks need to improve their credit underwriting standards and credit appraisal standards.

He further mentioned that RBI is in the process of taking some important decisions on the report, especially with regard to looking at certification requirements for people who work in certain specified areas.

“The FSLRC (Financial Sector Legislative Reforms Commission) has called for a process of certification for certain specified areas. That was further explained by the Gopalkrishna Committee, which studied it for the banking and non-banking sectors. We are studying these recommendations and looking at what we can do to bring in some order with regard to people being posted in specified areas.”, he said.

Originally Published at: Financial Express

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