The Indian industry feels that the government’s decision to set up new banks will provide a major boost to its financial inclusion programme. A survey conducted by the federation of Indian chambers of commerce and industry (Ficci) says the licences to new banks would be ‘game changer’ in terms of improving the financial inclusion scheme.

“The new bank licences will also encourage existing players to improve efficiency. The new players with sound financial base will bring in the much-needed capital that is required to support the credit needs of the economy and they will generate huge employment opportunities,” said the Ficci survey released on Thursday. It is based on responses from existing banks, NBFCs, corporate and industrial houses and other stakeholders.

“Eighty-eight percent of the respondents feel that RBI condition for an applicant applying for a banking licence to set up at least 25 percent of its branches in unbanked rural centres with a population of less than 9,999 will play a significant role in the expansion of banking services to mid cities and rural India and hence help in increasing financial inclusion in India,” the survey adds. Twenty six firms have applied for the new licences, the last date for the application of which ended on July 1.

Compared with other developing countries, Indians’ connection with the banking sector is a weak link. Only 35 percent of its population is connected with the formal banking sector while in developing countries it goes up to 41 percent.

India still has a large gap to cover in terms of connecting its citizen with the banking sector. “A vast majority of approximately 6,50,000 villages in India do not have a single bank branch thus leaving a huge chunk of rural population in the hands of moneylenders. The total number of branches in rural India stood at 37,471 and the total banking outlets in villages after taking into account the branches, business correspondents and other modes was just 1,81,753 (as on March, 2012),” the survey notes.

Highlights of the report:

Sixty-nine percent of the respondents felt that corporate/ industrial houses should be given licences while the remaining 31 percent felt that they should not be allowed to operate as banks.

Fifty-eight percent of the total respondents felt that new banks should start afresh completely while only 42 percent of the respondents felt that new banks should acquire existing smaller banks and grow.

Fifty-nine percent of the respondents felt that the process of issuing bank licences to new players should be an ongoing process.

Thirty percent of the respondents felt that the time line for reviewing a new bank application should be 6-12 months.

Seventy-two percent of the respondents felt that the recommendations of the advisory committee after its review of a new application should be considered seriously by the RBI board in granting licence to an applicant rather than it being binding on the RBI board.