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Jul 10, 2013

Impact of new banks on Indian Economy?

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Reserve Bank of India
The Reserve Bank of India has given green signal for new banking license that said the once the process is completed the new banks would be there in banking sector. Many private companies and non-financial institutions could start private banks in India.

The nationalization of banks is the milestone in Indian banking system that boomed the economy. There are many private banks in India apart from the 19 nationalized banks. The apex bank would aim to check the money laundering and other various norms in the banking before allowing more private players into the banking sectors.

Recently there were reports about the violation of norms by various banks in the media and the RBI has taken stern actions in that directions. Another important duty of the RBI is – its custodian of Indian economy, being playing the role, the bank would try to check the liquidity into the market.

The high inflation and devaluation of rupees against the US dollar are some of the major challenges the RBI has to address with more stern action. Liquidity is the major cause for many fiscal crises in the country and those would be in the priority to-do list of the apex bank.

With the entry of the new banks into the sectors, the task to check the liquidity and cash flow into the market would be big challenge for the apex bank to follow. More branches involve more transactions boosting the velocity of money in the economy.

That could be help the economy in boosting market conditions as well as fueling inflation, as the too much money chasing to too few goods. On the other hand, the credit market would also take a big leap with the entry of new banks; the volume of credit market in terms of loans would go up.

There would another danger for the bank having non-performing assets, which could also have adverse impact on the economy’s health. If the credit market, bad recovery and non-performing assets would go up beyond control the sure that could adverse the growth pace of the Indian economy.

There is no doubt that the new banks would prove positive for the economy , as in the guidelines the apex bank has said that more branches need to be opened in the rural areas. This is going to be the best thing that the bank tried to boom the rural banking sector, which said to be in gloom for many years.

Indian economy needs a big push to keep its growth rate moving forward from 5 per cent to 8-9 percent in coming years. And the entry of new banks could help the economy to revive and cherish during ongoing global economic slowdown.


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