Permission for new private banks to participate in government business will be based on RBI guidelines: FM

Finance Minister Nirmala Sitharaman on Tuesday said in Parliament that permission to new private banks for conducting government-related business will be given under the RBI guidelines.

Ms. Sitharaman, during the Question Hour in the Rajya Sabha, said the government has now “only indicated” the RBI to allow other private banks to perform government-related business to ensure there is a level playing field.

“Now, following the existing norms based on which several banks have been given permission to do the business. So, those rules as per the RBI guidelines be applied on newer banks and new private banks which approach the RBI,” she said.

The RBI, being a regulator, has established norms and those norms will be applicable to the new banks, she added.

The Minister was responding to a query about whether the government will adopt any criteria to permit new banks for taking up government-related business.

Responding to another query by Shiv Sena leader Anil Desai that if public sector banks will weaken by allowing private banks to conduct government-related business, Ms. Sitharaman said some private banks and all public sector banks are doing this.

“Some customers are already benefiting from private banks from such services. The attempt now is to bring a level-playing field. Some private banks are already doing, all public sector banks are doing, why not extend to all private sector banks so that everybody gets an equal opportunity,” she explained.

This is being done because the business is growing and many more citizens are approaching the banks. As it was highlighted, the ease of doing business will have to be extended to all customers, she said.

Minister of State for Finance Anurag Singh Thakur said banks handle two kinds of businesses. One is the agency commission under which revenue receipts and payments on behalf of the Central and State governments and pension payments in respect of the Centre and State governments or any other item advised by the RBI is carried.

On the other hand, certain items fall under the work, which does not have the agency commission, but that has to be done by the bank such as furnishing of the bank guarantees and banking business, etc.

Stating that there is an increase in the share of private banks in the banking sector, Mr. Thakur said the deposit of the private banks has increased from 12.63% in 2000 to 30.35% now. The advances, too, have increased from a mere 12.56% to 36% now.

That apart, the share of the private sector in priority sector lending is rising. The private banks have given loans of ₹12.72 lakh crore, which is close to 50% of the priority sector lending.

During the COVID-19 period, private bank participation in the government’s emergency credit line guarantee scheme has gone up.

Under the scheme, the cumulative sanction from public sector banks was ₹95,261 crore, which was 38.22% of total lending. On the other hand, private sector bank lending was ₹1,28,297 crore, which was 51.5% lending of the emergency credit guarantee scheme. This clearly shows that the lending has gone up and their participation is more, he said.

Therefore, the decision to allow the private banks to undertake government-related business was taken for the betterment of consumers, ease of business and ease of living, he said, adding that this will enhance customer experience, enable innovation and latest technology that will help the business community and MSMEs.

“It will also lead to a spur of competition for higher efficiency,” the Minister added.