Likely delay in new banking licence rules

Parliament panel set for extensive consultation with RBI, other stakeholders.

The issuance of new banking licences in the private sector may not come soon, with the Parliamentary Standing Committee on Finance expected to hold extensive consultations with the Reserve Bank of India (RBI) and other stakeholders on the proposed guidelines.

A standing committee member told Business Standard that the biggest concern was that of conflict of interest in allowing new banking licenses. “We will have more consultations with RBI and also with other stakeholders including banks and financial institutions and also employee associations. The Finance committee will then submit a report by August 2012 on the proposed guidelines for issuance of new banking licenses in the private sector, he added.

The member of the Parliamentary panel added that in the light of 2G scam, the committee had already suggested the RBI to consider allotment of fresh licenses on the basis of a bidding process. “RBI is expected to submit its response to the committee soon,” he added.

Another member said the Banking Law Amendment Bill was currently with the Standing Committee and whatever emerges out as the final provisions on the voting rights in the Act would need to be taken care of while formulating guidelines for providing new licences.

The two options in this case before RBI now is to either wait for the clearance of Banking Law Amendment Bill by Parliament or issue the final guidelines and then clearly specify that those getting the licenses will have to accommodate the provisions of the Bill when it becomes an Act.

The Standing Committee has already held its first meeting with RBI on the issue after it issued the draft guidelines for seeking comments and views on August 29. One of the members of the panel said that it was also stressed in the meeting that issuance of fresh banking licenses should not be hurried through before the passage of the Bill in Parliament.

As per the draft norms, private sector entities or groups owned and controlled by Indian promoters, with diversified ownership, sound credentials and integrity, and having successful track record of at least 10 years — would be eligible to promote banks.

While presenting the Budget for 2011-12, finance minister Pranab Mukherjee said, “In my last Budget speech, I had announced that Reserve Bank of India would consider giving some additional banking licences to private sector players. Accordingly, RBI issued a discussion paper in August, 2010, inviting feedback from the public. RBI has proposed some amendments in the Banking Regulation Act. I propose to bring suitable legislative amendments in this regard in this session. RBI is planning to issue the guidelines for banking licences before the close of this financial year”.

The Banking Law Amendment Bill was subsequently introduced in the Lok sabha on March 22 and has been sent to the Standing Committee.

The Bill seeks to provide for prior approval of RBI for acquisition of 5 per cent or more of shares or voting rights in a banking company by any person and empowering RBI to impose such conditions as it deems fit in this regard.

It also has the provision for empowering RBI to collect information and inspect associate enterprises of banking companies.

The entities which are currently mulling entering the banking arena includes Reliance Capital, IndiaBulls, Religare, IL&FS, IFCI and Aditya Birla Financial Services.


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