Friday, July 13, 2007

Controls on banks opening branches

Sourav Majumdar has an article on the oddities of branch licensing for banks by RBI in Financial Express of June 29. While on this subject, recommendation #62 (Chapter 15, page 204) of the MIFC report will interest you:

The control of branch licensing for banks is an anachronism, at a time when India has moved away from the license- permit raj in most respects. There is no other industry in India, today, where firms have to take permission from the government in order to open branch offices. Simply because they take deposits does not make bank branches any different from other market enterprises. Banks should decide where and when they want to open branches and not the regulator. As part of improving competition policy, the opening of branches by domestic banks should now be immediately decontrolled. No domestic bank should have to ask the banking regulator for permission for each ATM or branch. After one year this policy should be extended to all banks. This will give local banks a one-year head start over foreign rivals on opening branches.

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