Differentiated Banking in India: A Long Way to Go
Dr Gursharan Singh Kainth
Director
Guru Arjan Dev Institute of Development Studies
14-Preet Avenue, Majitha Road
PO Naushera, Amritsar 143008
RBI-constituted Nachiket Mor Committee for financial inclusion first mooted the idea of having
differentiated banks in the country. The panel's suggestions include specialized payment banks,
retail banks, wholesale banks, infrastructure banks etc. Recently, RBI granted universal banking
license to two applicants - Bandhan and IDFC -- and added that some of the nearly two dozen
aspirants were more suited for differentiated banking license. But it would be bit early to
introduce differentiated banks' model in the domestic context, No doubt, universal banking model
remains the dominant and preferred model across the globe, there are countries, for example the
US, Australia, Singapore, Hong Kong (China) and Indonesia that offer differentiated banking
license. Maintaining that time is not ripe for such a system, because 40 per cent of India's
population falls into the financially excluded category. Moreover there was not so encouraging
experiences with the Local Area and Regional Rural Banks. The differential banking activity
licenses issued to RRBs and local area banks (LABs) could achieve limited success which
prompted authorities to call for large size banks to go for rapid financial inclusion in a time
bound manner. It would be very difficult for a differentiated bank to survive by selling only one
or two products. Only the foreign lenders, which undertake niche business activities even though
they have a universal banking license, could be possibly interested in differentiated licensing.
Additionally, the differentiated licensing model can be tried for fee-based business areas like
credit card, remittances, payment and settlement business. The real challenge before the
regulator will be two-fold. Firstly, maintaining systemic stability while encouraging presence of
different kinds of banks, and secondly, making sure that no bank can indulge in regulatory
arbitraging.
Financial sector reforms introduced in a calibrated and well-sequenced manner since the early
1990s have resulted in a competitive, healthy and resilient financial system. There has been
financial deepening: the deposits/ GDP ratio rose from 16.4 per cent in 1971-75 to 36.1 per cent
in 1989-90 and further to 60 per cent in 2004- 05. Bank credit to commercial sector increased
from 15.6 per cent to 30.3 per cent of GDP in 1989-90 and 48 per cent in 2005-06. The Annual
Policy Statement for the year 2007-08 by Governor, Reserve Bank of India ( RBI) at para 185
states that “ with a view to directing the resources of banks to their niche areas and to sustain
efficiency in the banking system, a graded approach of licensing may be appropriate which can
be equally applicable to both domestic and foreign banks. RBI recognizes only one type of bank.
Apparently, the moment an entity becomes a bank; it is subject to the same rules and regulations
as every other bank. All large Indian banks look like each other, and they all look like mere
enlarged versions of what they were 10 years ago. Bank regulation is a giant homogenizing force
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that kicks in when a banking license is granted. If any of the currently specialist players get a
license, they will undergo this transformation and begin to look like the 90-odd scheduled
commercial banks. As India grows and becomes more sophisticated, banks must keep pace with
the sophistication of the real economy, where most firms do not look much like they were 10
years ago. An important feature of a sophisticated banking system is specialization. How do we
achieve specialization and diversity in our banking system?
Indian Banking System
The Indian financial system currently consists of commercial banks, co-operative banks,
financial institutions and non-banking financial companies (NBFCs). The commercial banks can
be divided into categories depending on the ownership pattern, viz. public sector banks, private
sector banks, foreign banks. This system evolved over several decades, is elaborate and has been
serving the credit and banking services needs of the economy. Apparently, there are multiple
layers in India’s banking structure to cater to the specific and varied requirements of different
customers and borrowers. As on 31 Mar’2013, there were 157 commercial banks [26 public
sector banks, 20 private sector banks, 43 foreign banks, 64 RRBs and 4 Local Area Banks
(LABs)]. Apart from this, there are also other
lenders, like Co-operative banks, infrastructure
lenders such as IIFCL, other specialized lenders
like EXIM Bank (trade finance), SIDBI (small
enterprises) and NABARD (agriculture and rural
activities), NBFCs and micro-finance institutions
etc, are also in the system. While the State Bank of
India and its associates, nationalized banks and
Regional Rural Banks are constituted under
respective enactments of the Parliament, the private
sector banks are banking companies as defined in the Banking Regulation Act. The cooperative
credit institutions are broadly classified into urban credit cooperatives and rural credit
cooperatives. Apparently, the Indian banks and financial institutions are presently being
operating in all business verticals and the concept of ‘Differentiated Banks License’ concept is
not new to India.
Recently, (On 02 April 2014, the start of FY 2014-15), the Reserve Bank of India issued long
awaited bank licenses to two new financial institutions. Applications for new bank licenses had
been invited by the Indian Central Bank in February 2014 under the Guidelines on Licensing of
New Banks in Private sector and these two were chosen from a pool of twenty-five applicants by
a commission headed by former RBI Governor Bimal Jalan. Bandhan Financial Services, the
micro-lending company, and Infrastructure Development Finance Company (IDFC), the infra
lending company, were granted these licenses and are likely to go operational and demonstrate
compliances by October 2015. What comes as a major surprise in this scenario is that among the
other institutions that had applied but failed to secure new licenses were some very big names –
Aditya Birla Nuvo, Reliance Capital, L&T Finance, LIC Housing Finance, India bulls Housing
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Finance, Edelweiss, IFCI, India Info line, J M Financial, Muthoot Finance, Religare, Shriram
Capital, and Bajaj Finserv. Additionally, RBI indicated that further bank licence will be based
on the experience from this licensing exercise, which may help to put banking licence ‘On Tap’.
The remaining 23 banking licence aspirants, who could not qualify in this round for a fullfledged banking license, may either apply in future rounds or apply for Differentiated Bank
Licenses (DBL) under the proposed framework.
Under the Differentiated Bank Licence (DBL) model, banks will be allowed to offer products
only in select verticals, like Infrastructure, Project Financing and Payment Service etc. as
indicated in the Nachiket Mor Committee report. The regulator is in a view to allow a wider pool
of entrants into banking under DBL rather full-fledged banking licence, which needs more
capital, experience etc. Indian market is still untapped and there are diverse opportunities in the
banking and financial landscape reflecting significant macro-economic growth potential and
Differentiated Bank Licensing could enable unlocking potential of these opportunities as it
encourages niche banking by facilitating specialization thereby reducing potential non-optimal
use of resources. Each of the niches has the potential to be individually large to sustain
significant balance sheets and specialized entities can play a major role in all of them.
First, in the current round of licensing, RBI not only recognizes diversity but encourages it. It
can do so by giving licenses to applicants with diverse and specialist business models that focus
on specific customer segments, products, and technology and process platforms. More
importantly, it needs to show flexibility in regulation, and not ask all banks to look the same in
the short run. Financial regulation is about consumer protection and micro-prudential regulation,
and not homogenization.
Second, RBI needs to start thinking about Differentiated Banking Licenses. Why should we have
only one type of license? Why can’t we have a utility bank – one that provides only transaction
services (e.g. security related services such as custodian, trade related services, etc) and does not
lend or borrow (significantly)? Why can’t we have a payment specialist bank or home loan banks
(one that can take deposits but lend only in form of home loans, by far the safest lending for
Indian banks)? Everyone talks about financial inclusion, so why can’t we have an inclusion bank
– one that serves only the bottom of pyramid customers?
Such specialist banks will be expected to focus on their own individual niches and strengthen
their capabilities in serving these niches as a bank - through access to payment systems, ability to
raise deposits, regulatory oversight, etc. The presence of such banks will make the system less
monolithic and hence better placed to face economic cycles. With Differentiated Banking
Licenses, we will have banks that do not face boom and bust at the same time. Reduced
correlations between banks will give lower systemic risk.
Issuing Differentiated Licenses, however, will require that RBI has to become more sophisticated
in how regulations are drafted. RBI's regulatory staff will need to understand each business
model, and write regulations about consumer protection and micro-prudential regulation that
cater to the unique features of that business model. These regulations will have to differentially
use the main tools of micro-prudential regulation – capital adequacy and reserve requirements,
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regulatory audits, reporting and compliance -- so as to achieve the desired failure probability,
while recognizing differences in business models. RBI will also have to ensure that there is no
regulatory arbitrage that is created across different types of banks.
No doubt, IFS, correctly, anchors the definition of banking around deposit taking. If we take this
definition to its logical end, if an entity does not take deposits - it’s not a bank. A payment
company, whose model does not entail deposits, can thus be a non-bank. Unfortunately, today
such a company is not possible as a non-bank cannot participate in the payment system at all. To
make it easy, Consider the deMat accounts for securities. All the securities are held by the
depository which has the legal ownership of them and the Depository Participants (DPs) carry
the customer accounts and facilitate transactions - buying and selling of securities. Why can't
such a model work for a payment company? Can we have a situation where money is held by a
few players but a larger set of players facilitate instructions that create flows between the
accounts - which is effectively payments. Let's separate the money flows and the information
flows. All the innovation is around how information flows around payments happen.
The Reserve Bank of India plans to introduce the Differentiated Bank Licensing policy. This
means that specific banking licences would be issued depending on the core activity of the bank.
Thus some banks may have only Wholesale Banking Licence under which they can offer loans to
Corporates and accept corporate deposits, but cannot accept retail deposits. An entity with a
Differentiated Bank License need not engage in basic banking activities nor do they need to
adhere to priority sector obligations.
International Experience and Practice
International experience and practices of licensing procedure followed in major jurisdictions by
the respective regulators can be grouped into two viz limited banking licences - equally
applicable both for domestic and foreign banks and limited bank license-different for domestic
and foreign banks. In addition, there are countries where different licences are issued for
commercial banking, savings bank, rural banks or credit unions. In certain counties no distinction
is made between domestic and foreign banks. Thus, there is no widely accepted recommended
model available internationally.
Globally, some countries like USA, Australia, Singapore, Hong Kong, London and Indonesia,
are practicing Differentiated Bank Licensing model. These countries are typically open
economies and large and growing financial sector (in terms of its contribution to GDP) seem to
be favoring Differentiated Licensing Policy. What is interesting is that the policy of
differentiated licensing is followed in Malaysia and Brazil in spite of the fact that promoting
financial inclusion has been an important thrust in the Central Bank’s developmental role in
these countries. The criterion for differentiation for the purposes of issuing differentiated
licences could be anchored either to capital conditions, as is practiced in Indonesia or to the
activity as is the case in Australia, Singapore and Hong Kong. The supervision will vary from
bank to bank depending on the type of licence the bank undertakes. For instance, in Singapore
there are five types on branch licences — full bank, qualifying full bank (QFB), wholesale bank
(WB), offshore bank and representative bank.
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A Full Bank conducts a whole range of banking business for retail and corporate clients, but non
Singaporean banks do not enjoy as much flexibility as their local counterparts in terms of branch
expansion and ATMs.
QFB is for non-Singaporean banks where the licence allows banks to have additional branches
or off-premise ATMs and share ATMs amongst themselves. Under the WB licence, a bank can
only have one place of business in Singapore and cannot operate savings accounts and
Singapore-dollar fixed deposits of less than $2, 50,000.
Offshore Banks licence allows banks to operate mainly in the Asian dollar market, foreign
exchange and wholesale banking with non-residents. The Representative Office Licence
prevents banks from conducting regular banking operations, but promotes business and
correspondent banking business between their home offices and the region.
Apparently, in some countries separate norms exist between domestic and foreign banks on
licensing policy, while some do not discriminate between foreign and domestic banks. India does
not follow Differentiated Licensing Policy between domestic and foreign banks as the regulatory
regime for domestic and foreign banks is non-discriminatory. With a view to directing the
resources of banks to their niche areas and to sustain efficiency in the banking system, a graded
approach of licensing may be appropriate, which can be equally applicable to both domestic and
foreign banks.
Nachiket Mor Report:
The multi-member panel led by ex-ICICI Bank Executive Director Nachiket Mor, set up by the
Reserve Bank of India (RBI) has called for establishing Differentiated Lenders, including one for
small businesses and low-income households. The
bank for small businesses, called the 'Payments
Banks', will focus on providing primary services to
the people. "Given that their primary role is to
provide payment services and deposit products to
small businesses and low- income households, they
will be restricted to holding a maximum balance
of Rs. 50,000 per customer. Payments banks shall
have a minimum capital requirement of Rs. 50
crore, one-tenth of what a full-service bank requires,
since they will have a near-zero risk of default and
maintained that existing lenders should be allowed to have payments banks as a subsidiary. The
payments banks can be created by converting prepaid payment issuers (PPIs). There are more
than two dozen PPIs that provide mobile wallets or cards that customers can use to make
payments with the money that’s stored in them. They can gradually convert themselves into
banks and even others can join them. Over a period of time, they can start offering other services
as well.
The panel suggested a slew of dedicated banks to be formed, including the 'wholesale banks'
which will lend big amounts but should not rise over Rs. 5 crore from a single depositor. The
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report suggested a bank dedicated to funding infrastructure projects. This comes in the backdrop
of projection that infrastructure sector would require an investment of $1 trillion during the 12th
Plan (2012-17). At present, the country has a universal banking system wherein lenders serve all
the needs. However, there have been a lot of issues due to which the idea of differentiated
banking has been gaining ground.
A differentiated license will allow a bank to offer products only in select verticals, such as
project financing, or focus only on a certain banking service, like in the case of payment banks.
They will have to set up shop with all compliances in the next 18 months.
RBI hopes to open the window soon...first for differentiated licenses like payment banks and
then open the 'on-tap' licenses for universal banks. On-tap licensing means that the RBI window
for granting banking licenses will be open through the year and not every tenth years.
RBI exhorted banks in cleaning up their balance sheets in the wake of rising bad loans and
warned lenders for their intention to defer recognition of bad loans. "Don't keep postponing the
recognition of the problem by saying 'give some forbearance, treat this as a performing asset' and
so on. This (asking for relaxation against bad loan recognition) is a wrong way to go about. The
best thing to do is to make sure that the asset itself becomes viable. Gross NPAs, of 40 listed
banks shot up by 35.2 per cent, or Rs 63,386 crore, for the nine months to December 2013 to
cross the Rs 2.4 lakh crore marks. This jump of 35.2 per cent was much higher than the 27 per
cent rise witnessed in the first six months of 2013-14, according to a study by NPAsource.com, a
portal for stressed loans.
If we clean up our balance sheet, the markets will be willing to provide finance to the institutions
that have strength in balance sheet and, thereby, create space for finance. There is need to
underscored ‘know your customer' (KYC) norms. If it becomes a bureaucratic end in itself and
prevents us from expanding access even while not doing so much to keep the crooks away from
the system, we have to re-examine, but the current KYC norms are not bad.
Unlike a universal banking license which is a blanket license that allows banks to offer a range
of services, a differentiated license from the RBI will allow a bank to offer specialized
services in select verticals – such as project financing, mortgage banking, industrial financing
etc. Currently in India, the RBI issues a universal banking license to both domestic as well as
foreign banks. All banks in the country retain access to the central payments and settlement
system and are blanketed by the deposit insurance cover. Why, then, is RBI considering
differentiated banking now? In a country like India, the presence of varied financial institutions
that have developed niche businesses has brought great variety to the finances sector. Each such
institution has specialized in specific functions – gold loans, infrastructure financing, auto loans,
micro financing etc. To bring them all under the RBI umbrella, currently they need to be issued a
universal banking license, forcing them to diversify into businesses they have no experience or
expertise in. issuing of differential banking licenses, however, is likely to promote better
utilization of financial resources, bring depth to core activities, and allow institutions to focus on
specific needs and customer segments.
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The Reserve bank of India (RBI)’s proposal to issue differentiated banking licences appear to
have caught the imagination of foreign banks. The RBI’s guidelines on sub standardization
didn’t really excite foreign lenders in the country. However, Bankers say several mid-sized
foreign lenders are keen to apply for such a licence, as and when RBI decides to offer these. Of
the 43 foreign banks in India, only four or five are engaged in full-fledged banking. The rest are
doing specialized banking business, though they have been given a universal banking licence. It
makes sense for them to opt for a differentiated banking licence and maintain focus on their core
activity.
Differentiated licensing must be given only on basis of ownership and capability. “When you try
and do it on different rules and regulations, it inevitably leads to financial tussles because you
end up with non-level playing field and you create arbitrage which becomes very difficult to
compete with. Presently, priority sector norms mandate every commercial bank to lend 40 per
cent (now 50 per cent as per recommendation of Nachiket Mor committee) of their net bank
credit to agriculture, small and medium enterprises every fiscal regulatory arbitrage must be
prevented. The lucrative parts of business will get a lot of players, whereas for universal bankers,
some parts of business are cross-subsidized. Intense competition in lucrative businesses would
make it difficult to maintain other parts (subsidized) of the business.
Banking Regulation Act, 1949:
Prior to the enactment of Banking Regulation Act, 1949 (BRA-1049) which aims to consolidate
the law relating to banking and to provide for the nature of transactions which can be carried on
by banks in India, the provisions of law relating to banking companies formed a part of the
general law applicable to companies and were contained in Part XA of the Indian Companies
Act, 1913. These provisions were first introduced in 1936, and underwent two subsequent
modifications, which proved inadequate and difficult to administer. Moreover, it was recognised
that while the primary objective of company law is to safeguard the interests of the shareholder,
that of banking legislation should be the protection of the interests of the depositor. It was
therefore felt that a separate legislation was necessary for regulation of banking in India. With
this objective in view, a Bill to amend the law relating to Banking Companies was introduced in
the Legislative Assembly in November, 1944 and was passed on 10th March, 1949 as the
Banking Companies Act, 1949. By Section 11 of the Banking Laws (Application to Cooperative
Societies) Act, 1965, the nomenclature was changed to the Banking Regulation Act, 1949.
RBI As Regulator of Banks
The Reserve Bank of India has been entrusted with the responsibility under the Banking
Regulation Act, 1949 to regulate and supervise banks' activities in India and their branches
abroad. While the regulatory provisions of this Act prescribe the policy framework to be
followed by banks, the supervisory framework provides the mechanism to ensure banks'
compliance with the policy prescription.
General Framework of Regulation
The existing regulatory framework under the Banking Regulations Act 1949 can be categorized
as follows:
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a) Business of Banking Companies
b) Licensing of banking companies
c) Control over Management
d) Acquisition of the Undertakings of banking companies in certain cases
e) Restructuring and Resolution including winding up operation
f) Penal Provisions
Licensing of banks
In terms of Sec 22 of the Banking Regulation Act, no company shall carry on banking business
in India, unless it holds a licence issued in that behalf by Reserve Bank and any such licence may
be issued subject to such conditions as the Reserve Bank may think fit to impose. Before
granting any licence, RBI may require to be satisfied that the following conditions are fulfilled:
i) that the company is or will be in a position to pay its present or future depositors in full as their
claims accrue;
ii) that the affairs of the company are not being , or are not likely to be, conducted in a manner
detrimental to the interests of its present or future depositors;
iii) that the general character of the proposed management of the proposed bank will not be
prejudicial to the public interest or the interest of its depositors;
iv) that the company has adequate capital structure and earning prospects;
v) that having regard to the banking facilities available in the proposed principal area of
operations of the company, the potential scope for expansion of banks already in existence in the
area and other relevant factors the grant of the licence would not be prejudicial to the operation
and consolidation of the banking system consistent with monetary stability and economic
growth;
Business of banking
As per Section 5 (b) of Banking Regulation Act, 1949 “ banking” means the accepting , for the
purpose of lending or investment, of deposits of money from the public, repayable on demand or
otherwise and withdrawable by cheque, draft, order or otherwise.
Permissible Activities of Banking Company
Section 6 of B.R. Act, 1949 gives the details of forms of business in which a banking company
may engage. However, it is a long list and banks may carry out one or more activities permitted
in the section.
Whither Financial Inclusion?
Despite the clarity in the Rangarajan Report on Financial Inclusion, 2008, and despite some
efforts by RBI/NABARD, financial inclusion of all adults by 2015 remains a distant dream. The
Financial Inclusion Technology Funds (FITF) is not being permitted to be accessed by
commercial banks as per the Government of India (GOI) fiat. The Reserve Bank prefers to
exclude cooperative banks from financial inclusion initiatives, thus cutting off their access to the
Financial Inclusion Fund (FIF) and the Financial Inclusion Technology Fund. And this, despite
public statements made by the RBI Governor that cooperatives are best suited for financial
inclusion. Add to this, NABARD’s poor stewardship of the FIF/FITF for the last two years and
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the agenda for financial inclusion appears to be a lost cause. The RBI did come up with the ‘nofrills accounts’ and the ‘BC/BF models’ for financial inclusion but these initiatives have not set
the Ganges on fire. These have proved to be damp squibs and commercial banks have not been
able to come to terms with these initiatives due to sound operational and logistics reasons.
Dismal Prospects
The latest initiative is to ensure mini-branches in villages with populations above 2,000 and this
appears to be useful for political reasons only. How and when these branches will break even
(2,000 branches were opened recently in a single day in Uttar Pradesh by the Finance Minister),
is anybody’s guess. To sum up, the financial inclusion scenario is virtually lifeless and listless
and reviving this, is important as despite the MFI disaster in 2010, SHGS are acutely needed in
rural India for ensuring that the really poor are not financially excluded. But even the microfinance scenario is beset with problems and the sectoral growth is dampened due to the AP
fiasco, which refuses to settle down.
The Regional Rural Banks (RRBs) are limping along as they are competing for business in rural
India with their sponsor banks and are being treated as poor cousins of the nationalized banks
while the ‘Local Area Bank’ experiment seems to have failed miserably and except for a few
economists, who are influenced by the American model of local banks, no one wants to revive or
strengthen them. In our banking system, the collapse of a single commercial bank is disastrous
and the lessons from the Golden Trust Bank collapse should not be forgotten
so soon.
Wings of Hope or Doomsday Despair?
The Ministry of Finance has been prodding the RBI to take steps to license new banks and the
Finance Minister has taken personal interest in doing so. Financial inclusion is on the GOI
agenda and efforts to create new banks, are being ramped up. But RBI, being the regulator, is in
the hot seat as the opening up of urban cooperative banks licenses in the latter half of the 1990s
led to a disaster with the RBI failing to supervise these banks effectively. Also the private sector
banks have preferred to operate in cities and smaller towns and have failed to penetrate into rural
and semi-urban areas. Despite RBI’s determined efforts, ICICI Bank, HDFC Bank, AXIS Bank,
Mahindra Kotak Bank, Yes Bank, Indusind Bank have preferred not to open up branches in rural
areas. With various business houses lining up for lucrative banking licenses, RBI is very
apprehensive about the slew of regulatory problems that will emerge. As it is, the priority sector/
agricultural sector targets are not being achieved by most commercial banks and the private
sector banks are being permitted by the RBI to window-dress their lending to these sectors and
buy up portfolios from various cooperative banks to dress up their balance sheet. As it is, these
statistics are far from accurate. RBI’s apprehensions are well-founded and it is not the
cooperative banks that are encouraging money-laundering but the private sector banks (as
showed in a recent sting operation in Delhi). If various business houses and NBFCS are allowed
to set up banks, their clout with the powers that be in Delhi would enable these new banks flout
RBI directives with impunity. That is why RBI is rather apprehensive about opening up licenses
for new banks. They would lose control over the banking system and that would be an
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unmitigated disaster. With the economy in a tail-spin, is the timing right for licensing new
banks? A common sense approach would perhaps postpone fresh bank licenses.
A Way Out
Differentiated banking model has not worked for the country in the past and it is still too
premature to implement it in India. It would be bit early to introduce such a model in Indian
context, as nearly 40 per cent of the total population is still financially excluded in the country.
Differential banking activity licenses issued to regional rural banks and Local Area Banks
(LABs) could achieve only limited success which prompted authorities to call for large size
banks to go for rapid financial inclusion in a time bound manner. The other issues include the
impact on priority sector lending by allowing some lenders to focus on niche segment. It also
flags risks involved in allowing niche players unlimited access to wholesale funds through interbank borrowing. Finally it points out that banks function by engaging in cross-subsidizing loss
making business in one segment with earnings from another which will not be possible for
specialized banks. DBL model can however be tried in the fee-based business areas like credit
card business, remittances, payment and settlement business and thereafter should gradually
move to areas like infrastructure and corporate financing. Bankers needed some assurance from
the regulator that new bank licenses don’t get ‘special’ regulatory treatments.
While the GOI concern for rapid financial inclusion is appreciated as it could pave the way for
smoother implementation of rural development and poverty alleviation efforts, thereby reducing
wastage of critical funds, some other worries are emerging. But with regulatory disaster staring
them in the face if new bank licenses are doled out to powerful business houses, RBI
apprehensions are not ill-founded. An ‘out-of-the-box’ solution will have to be found so that
both the concerns are addressed while doling out new bank licenses. Certain axioms for the
entire banking industry need re-visiting today. Indian market is still untapped and there are
diverse opportunities in the banking and financial landscape reflecting significant macroeconomic growth potential and differentiated licensing could enable unlocking potential of these
opportunities as it encourages niche banking by facilitating specialization thereby reducing
potential non-optimal use of resources. Each of the niches has the potential to be individually
large to sustain significant balance sheets and specialized entities can play a major role in all of
them. Will the RBI implement the differentiated banking model soon? Will India remain
receptive and positive to the change? Will differentiated banking be good for the country? We
shall wait and watch
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