RBI shouldn't grant banking licences to companies: Parliamentary panel
Dec 10, 2013
Source : The Times of India


DELHI: A parliamentary panel has suggested that the Reserve Bank of India (RBI) should not grant new banking licences to companies since the banking business is highly leveraged and involves public money. "Banking being a highly leveraged business involving public money and public welfare, the committee (members) are of the considered opinion that it will be more in the fitness of things to keep industry and banking separate," the committee noted in its report released on Monday.

The government is not bound to accept the recommendations of standing committees of Parliament, but if corporate ownership is seen as negative then some of the professionally-managed companies with diverse ownership stand a good chance of getting a licence.

The RBI has received 26 applications to start a new bank, including from Anil Ambani-led Reliance Capital, Aditya Birla Nuvo, Shriram, Religare and L&T Finance.

RBI governor Raghuram Rajan has indicated the RBI could award licences early next year, taking into consideration recommendations of a screening committee to review the applications.

Tata Sons had withdrawn its application last month, saying its current financial services operating model best supported the needs of the group.

The standing committee on finance, headed by former finance minister and senior BJP leader Yashwant Sinha, has in its report asked the central bank to accordingly review the new bank licensing guidelines.

The committee has expressed apprehension that management of private banks may deploy their funds to extend undue favour to their industrial owners, just as happened in the pre-nationalised era. "The committee is apprehensive that industrial or business houses may not be geared to achieve the national objectives of financial inclusion, priority sector lending, etc," the report said.

The 32-member panel has further said that the "fit and proper" criteria to be used by the RBI to grant licences "is too ambiguous" and leaves too much scope for subjective discretion of the central bank. Having such subjective, ambiguous and open-ended criteria, the report said, might leave the doors open for arbitrariness and invite charges of favouritism.

"The committee would, therefore, suggest that a more precise, a coherent and objective yardstick or criteria may be formulated to assess the credentials of divergent entities from different sectors in a uniform manner," the report said.

The RBI has set up an external committee under former RBI governor Bimal Jalan to screen the applicants. The central bank is also open to the possibility of continuous or "on-tap" licensing and the possibility of converting large urban cooperative banks into commercial bank.

The parliamentary committee, however, favoured a suitable mechanism to enable aggrieved applicants to seek review of decisions with a view to ensure fair play and justice in the licensing process. The committee also recommended an increase in the minimum capital requirement for the new banks to Rs 1,000 crore from the present Rs 500 crore.










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