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Longer wait for bank licence

New Delhi, March 21: New banking licences will be given only after the government vests more powers with the Reserve Bank of India to control the new entities — a process that is unlikely to be over in the next fiscal.

Amendments to the Banking Regulation Act that will give more powers to the RBI are likely to be tabled in the monsoon session of Parliament. The act will in all probability be referred to a standing committee, effectively puncturing all hopes of industrial houses bagging a licence in fiscal 2011-12.

“Empowering the RBI is essential for obtaining information about the other businesses of the corporate houses seeking banking licences in order to protect depositors’ interests,” said officials.

The government is also likely to set up a panel to vet the draft entry rules framed by the RBI.

“Effectively, new licences will be given by the end of 2012,” said the officials.

The apex bank had brought out a discussion paper in August on licences to business houses and non-banking finance companies, and regulations to foster competition.

Finance minister Pranab Mukherjee had said in his budget speech that the RBI was planning to issue the guidelines before the close of the current financial year.

The Economic Survey 2010-11 had suggested two types of licences, one for providing basic banking to fulfil the obligation of financial inclusion and the other for full banking encompassing all the activities of a commercial bank.

Meanwhile, the RBI has said it will look at the business plan for financial inclusion before granting a licence.

“One of the criteria for evaluating an application (for new bank licence) that we will get in the due course of time will indeed be the business plan for financial inclusion,” RBI governor D. Subbarao had said earlier this month.

The RBI has been contemplating whether to make it mandatory for new entrants to have a rural presence or to leave it to the competition in the market to force them to look for newer markets.

Of the 600,000 habitations in the country, only about 5 per cent have a bank branch. Only 40 per cent of the population have bank accounts. India has 27 public banks, seven new private banks, 15 old private banks and 31 foreign banks.

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