India is planning to issue new banking licenses for the first time since 2014, signaling a major shift in long-standing policy. This move aims to strengthen the banking ecosystem, support economic goals through 2047, and address rising demand for credit across sectors
What’s on the Table
Bloomberg reports that the Finance Ministry and RBI are discussing a multi-faceted approach:
- Allow corporate groups to apply for bank licenses (with shareholding limits)
- Encourage NBFCs and Small Finance Banks (SFBs) to convert into full-service banks
- Easing foreign investment caps to attract global capital into public sector banks while retaining majority control The Financial Express
These discussions are at an early stage; no decisions have been finalized
Supporting Regulatory Developments
India’s central bank is also:
- Reassessing its bank license framework, including advisory committees to evaluate Universal Bank and SFB applications
- Forming a Standing External Advisory Committee led by former Deputy Governor M.K. Jain to vet license applications
- Reviewing digital banking and lending rules, aligning with initiatives like CBDC rollout
Long-Term Vision
The ultimate goal is to create larger, globally competitive banks and improve financial depth across the economy:
- Targeting bank credit at ~130% of GDP by 2047 (currently ~56%)
- Channeling NBFCs and SFBs to widen credit outreach, especially in underserved and rural areas
- Attracting foreign capital to build more robust state-owned lenders
Challenges Ahead
- Corporate participation remains contentious: RBI has historically opposed business houses owning banks due to conflict-of-interest risks and related-party concerns
- Foreign investment limits (15% stake, 26% voting rights) may need legislative approval to change Reuters
Bottom Line
India is on the cusp of a major banking reform, preparing to issue new licenses, empower NBFCs and SFBs, and open the sector to greater foreign and corporate participation. Though still early in policy discussions, this move reflects the government’s ambition to build financially inclusive and globally competitive banks in line with its 2047 development goals.
