House panel opposes bank licence to big biz

Tags: News
As the Reserve Bank of India (RBI) moves closer to issuing licences for new private banks, a parliamentary standing committee on Monday asked the central bank and the government to keep large industrial and business conglomerates away.

“Banking being a highly leveraged business involving public money and public welfare, the committee is of the opinion that it will be (better)… to keep industry and banking separate,” the committee on finance, headed by senior BJP leader Yashwant Sinha, said.

The report was tabled in Parliament on the day.

Another committee headed by former RBI governor Bimal Jalan is tasked with the first-level screening of banking applicants at its second meeting here on December 16.

RBI governor Raghuram Rajan had set a January deadline for awarding the licences.

But the process may get delayed, as the apex bank is still collating information about the applicants.

RBI has received 26 applications, including those from several industrial houses like the Aditya Birla group, Reliance Capital, L&T finance, Bajaj Finance, JM Financial, Religare Enterprises, Indiabulls and Muthoot Finance. The Tatas too had applied, but later withdrew.

The committee wants RBI to screen and evaluate the applications in a “well-defined and transparent manner” without leaving any room for speculation or conjecture.

The committee is not convinced with RBI’s rationale to allow large industrial houses to apply because they can easily fulfil the capital requirement. Also, they are already into other financial service sectors and in highly-regulated industries like power, telecom, airports and the like.

The new guidelines are unlike the 2001 guidelines, which had clearly kept large industrial houses out of reckoning for bank licences.

Of the 12 banks set up after the 1993 and 2001 guidelines, four were promoted by financial institutions. They are Axis Bank, ICICI Bank, HDFC Bank and IDBI bank.

Five banks set up in 1993 by individual professionals were GTB, Bank of Punjab, Centurion, Yes Bank and IndusInd Bank. A sixth, Times Bank, was set up by a media house. Of these only one has survived with muted growth and the rest have been compulsorily merged with a nationalised banks or voluntarily amalgamated with other private banks.

The committee says the mere issue of licences at this juncrure will not promote financial inclusion and the performance of the new private banks has not been very good on this score or on rural penetration. The committee also wants the minimum capital requirement to be doubled to Rs 1,000 crore.

It wants guidelines to clearly spell out norms of advances for new banks so that there is no appropriation of funds to serve the interests of promoter groups.

“The committee desires that the pitfalls of appropriation of banking resources for partisan gains should scrupulously avoided,” the report says.

To ensure ‘fairplay and justice’ in the licensing process, the committee has recommended that a suitable mechanism be instituted to enable aggrieved applicants to seek a review of decisions.

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