How the Differentiated Bank Licensing (DBL) is different from that of Universal Bank Licensing? Discuss elucidating the RBI measures to promote differentiated banking.

Differentiated bank licensing approach refers to a system of specific licences which enable banks to provide only selected products and services. These involve Limited Banking Licence, Commercial Banking Licence etc. Contrastingly, Universal Banks which include both public and private sector banks can offer all banking services. The former is also subject to many regulatory requirements as regarding their minimum capital requirements, loan structures etc.
RBI measures to push DFL:

  • RBI had approved 10 small finance banks for lending and basic banking to unserved and underserved sections along with 11 payments banks for basic savings, deposits, payment and remittances services to various sections with no access to formal banking.            
  • Other differentiated entities for wholesale lending and long-term financing to broaden the source of funds to corporate sector are also being considered by the Central Bank.
  • Differential banks will give rise to a varied type of investors with different risk-taking abilities and thus better finance the projects.
  • The concept of funding these banks is critical as they call for discovery of competitive funding

The success of the idea of differentiated banking will depend on the regulatory framework around it and banking reforms at large.  
 

Question for UPSC Mains:
How the Differentiated Bank Licensing (DBL) is different from that of Universal Bank Licensing? Discuss elucidating the RBI measures to promote differentiated banking. Live Mint

Published: November 14, 2017 | Modified:June 27, 2019

Comments