Lok Sabha on Tuesday passed the Banking Laws (Amendment) Bill, which allow the Reserve Bank of India (RBI) to start distributing licences to set up new banks.
RBI deputy governor KC Chakrabarty, on Wednesday, said the process for issuing new banking licences would be expedited. However, the deputy governor did not mention the timeframe.
India needs hundreds of banks as the country still remains one of the most under-banked nations among the bigger economies of the world. The banking penetration depends on loan-to-GDP (gross domestic product) ratio. It is measured by the amount of domestic bank loans made as a ratio of GDP.
India's loan-to-GDP ratio was 75% in 2011, while China's was 146%. The US has a ratio of 233%, with the UK close behind at 214%, according to media reports.
Changes brought by the new Bill will allow RBI to issue new banking licences. The Bill also seeks to raise the voting rights of retail/minority investors in private sector banks from 10% to 26%. The Bill also allows RBI to supersede boards of private sector banks and increase the limit on voting rights of private investors in public sector banks to 10% from 1%.