The Reserve Bank of India (RBI) released a discussion paper on the proposed structure of banking system in India.
The paper calls for abandoning the present two-tier banking structure in favour of a four-tier banking structure, which would usher in more competition, and resilience in the sector.
The present structure is broadly divided into commercial banks and cooperative banks. Commercial Banks include private and public sector banks, foreign banks, regional rural banks and local area banks. The second tier is made up of UCBs and rural cooperatives.
But the paper suggests a four-tier structure consisting of large banks, mid-sized banks, old private sector banks and fourthly small privately owned local banks and cooperative banks.
The paper proposed a banking system which is resilient enough to withstand shocks and which promotes financial stability besides meeting the needs of the economy.
Meanwhile, the paper also suggests government to consider issue of non-voting equity shares or differential voting equity shares, adopting financial holding structure or diluting stake in public sector banks.
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