EC paves way for issuing bank licences

Tags: News
The election commission on Tuesday cleared the way for the Reserve Bank of India (RBI) to grant in-principle approval for new bank licences. The commission in a letter to RBI governor Raghuram Rajan said, “RBI may take necessary action (for granting in-principle approval for banking licences) as deemed appropriate.”

RBI had moved the poll panel on March 12, seeking its advice on granting bank licences so as not to violate the election code of conduct. At his customary press conference after the money policy announcement on Tuesday, Rajan said the commission was consulted as RBI did not want the new licensees to be dragged into a political process.

Rajan asserted that granting of bank licence was not a political, but an economic and regulatory process. “It is something that Bimal Jalan (former RBI governor) had suggested, and I went ahead to ask the EC.”

With the EC giving its go ahead, the central bank would announce the new licences soon, after taking it to the RBI central board. “We have a lot of applicants. A bank licence is a measure of trust. So people who can build that trust can get the opportunity,” Rajan said.

The central bank received 27 applications for bank licence till July 1, 2013. Two of the aspirants, Tata Sons and Value Industries, later withdrew their applications on November 27, 2013. Aditya Birla group, Reliance Capital, L& T Finance, IDFC, IFCI and India Post are among the players left in the race.

Rajan said RBI wants to make bank licensing an ongoing affair and not a once-in-10- year process. The central bank favours setting up differentiated banks and universal banks, he said. “We don’t want to give licences every 10 years. There is scope for having banks with partial licence. This will allow people to develop banking capabilities even with relatively small size of operations. It will then allow them to apply for full banking licence down the line.”

State Bank of India chairman Arundhati Bhattacharya backed the idea. “Granting licences on a regular basis would prevent a big spike. It will help develop the banking system further.”

Meanwhile, RBI said it would not issue fresh NBFC licence for a year as it is in the process of overhauling the regulatory framework. “RBI has, therefore, in public interest, announced in its monetary policy statement on April 1 that it has been decided to keep in abeyance, for a period of one year, the issue of certificate of registration (COR) to companies proposing to conduct business of NBFI in terms of Section 45IA of the RBI Act, 1934,” a notification said.

However, COR applications already received by RBI on or before March 31 will be disposed of in the normal course, it said.

(With inputs from KR Sudhaman in New Delhi)

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