Fearing repetition of a 2G-like scam in Banking License

Fearing repetition of a 2G-like scam, some members of Parliament on Monday mooted an idea: Auction banking licences for new players.

“We have raised a question as to why should the government not go for auction (of banking licences), because there can be another scam like 2G,” said an MP, who attended a Standing Committee on Finance meeting. This idea has not yet taken a shape of recommendations to the government, he told Business Standard.

The proposal assumes significance in the context of draft guidelines of the Reserve Bank of India (RBI) issued in August this year.

RBI Governor D Subbarao, who appeared before the committee, is learnt to have said that he would state in writing to the panel the central bank’s stand on the new idea of auctioning banking licences.

Draft guidelines had proposed to allow corporates to enter the banking space, but with stringent conditions. The guidelines said private groups or entities with diversified ownership, sound credentials and a successful track record of 10 years would be allowed to apply for new banking licences. However, there is no talk of auctioning of these licences in the draft guidelines.

Though no one came on record, economists doubt the viability of the idea mooted by some members of Parliament. They said financial prowess cannot be the sole criteria in the field like banks. One of the intended purposes given at the time of mooting banking licence in the Budget for 2010-11 was to increase penetration of banking services.

Finance Minister Pranab Mukherjee had said the government needed to ensure that the banking system grew in size and sophistication to meet the needs of a modern economy.

“Besides, there is a need to extend the geographic coverage of banks and improve access to banking services,” he said in that speech.

The 2G scam, many say, took place because spectrum was not allocated on auction basis, but on a first-come-first-served basis. The Comptroller and Auditor General had estimated notional loss on the allocation of the wavelength at Rs 1.76 lakh-crore.

The members of Parliament also asked Subbarao as to what was the point in raising policy rates 12 times when it is not having impact on inflation. Inflation remained over nine per cent this calendar year till September.

They also said in insurance sector private players were given licences but penetration did not happen in rural areas substantially. In that context they asked the central bank governor that if corporates are given licences in the banking space, what is the guarantee of penetration in the rural areas.

They also wanted to know from Subbarao what are the proposals to check fraud in case corporates are given banking licences.

Source: http://www.business-standard.com/india/news/auction-banking-licences-to-avoid-another-2g-mps/452930/

Leave a Reply

Your email address will not be published. Required fields are marked *