India’s Ministry of Finance is working on a new policy framework for the country's banking sector.
The framework will provide a clear roadmap for regional rural banks, cooperative banks and other regional banks to grow to the next level. It will prescribe profit, capital adequacy, size and any other condition these smaller banks to graduate into full-fledged banks.
Analysts said the framework can ensure that banks have clear performance benchmarks that can complement their growth plans. They noted that a clear policy will provide incentives for better banks to do better and improve access to banking in states and regional centres that have low credit penetration now.
The Reserve Bank of India, the central bank, is ready with new bank licensing rules but is waiting for the changes in the banking law to be approved by Parliament. The Indian government recently allowed more bank licenses but progress has been slow since the government has been unable to amend the banking regulation act.
The Ministry of Finance also believes a growth map for the smaller regional rural banks will allow these banks to optimize modern technology and give them adequate resources to expand coverage in their regions.
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