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Monday, April 21, 2014

The Union finance ministry and the Reserve Bank of India (RBI) have raised questions on viability and implementation of the recommendations made in the Nachiket Morcommittee’s report. The panel had, among other things, suggested a new banking structure to foster financial inclusion.

According to finance ministry sources, there is unease with the idea of non-banking companies getting the status ofbanks, without obligations like adhering to the cash reserve ratio and the statutory liquidity ratio. The Mor committee had suggested setting up two types of banks – payment banks and wholesale banks – besides talking about some convergence in regulations for banks and non-banking financial companies (NBFCs).

The committee’s suggestion that existing commercial banks be allowed to hold payment banks as subsidiaries is also seen as unviable by RBI and the finance ministry. The ministry believes this might not serve the purpose of financial inclusion, as NBFCs charge very high interest rates and might continue to do so even after being converted into banks.