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Stage set for new bank licences

April 1: The Election Commission (EC) today paved the way for the entry of new players into the commercial banking arena when it allowed the Reserve Bank of India (RBI) to grant a clutch of new banking licences.

Earlier this month, the RBI had written to the poll panel for its guidance on the subject since it didn’t want to stoke a controversy at a time the election conduct rules were in force.

“The commission has considered your request seeking guidance… (it) is of the view that Reserve Bank of India may take necessary action as deemed appropriate by it,” the poll panel said in a notification posted on its website on Tuesday.

EC officials had earlier told The Telegraph that the commission, which oversees elections, did not wish to stall normal functioning of the government or of regulatory bodies such as the RBI.

RBI governor Raghuram Rajan had told reporters earlier in the day that the central bank would quickly announce the names of the new banking licensees once it received the EC’s approval.

The RBI is expected to announce the winners in the next few days.

“If they (the EC) say this is no issue, I think we will be in a position to announce the bank licensees fairly quickly after taking it to the committee of the central board,” Rajan added.

Rajan, however, maintained that the grant of new bank licences was part of a regulatory process and not political and that the central bank had sought the EC’s approval to ensure that any announcement did not rake up a political controversy.

“This (giving bank licences) is not in any way a political process. It is an economic and regulatory process and therefore seen as distant and different...We have to undertake what we have to undertake,” he said in response to objections raised by the BJP with regard to awarding bank licences while the election process is on.

Rajan said the central bank had sought the EC’s approval because it didn’t want the winners to get their approvals for a bank licences “under a cloud”.

On Monday, finance minister P. Chidambaram had said the RBI need not have sought the election commission’s view in the matter as the request for guidance might be read as an erroneous signal that the government was in some way involved in the process of doling out banking licences.

At a time “crony capitalism” has become the popular cuss phrase that politicians are hurling at each other, Chidambaram seemed a little peeved by the RBI’s tactless move.

Chidambaram said the entire process — starting from the framing of the guidelines to the vetting by an external committee appointed by the central bank — was an RBI-determined process and the government had nothing to do with it. The finance minister said Rajan was a newbie at Mint Street and had “acted out of abundant caution”.

The Bimal Jalan panel scrutinising bank licence applications submitted its recommendations to the RBI on February 25.

There were 25 applicants for the bank licences including L&T Finance, Religare, Reliance Capital, Shriram Capital, the A.V. Birla Group, LIC Housing and Muthoot Finance.

Top officials had speculated that IDFC and LIC Housing were likely to be among those selected for the coveted licence despite initial reservations about IDFC.

The RBI has indicated that it doesn’t intend to stop the process after the issue of the first set of licences.

The central bank said it would create a system of on-tap licensing for full-fledged banks. An on-tap licence means that an interested party can apply for permission to establish a bank at any point of time.

The central bank also plans to permit the creation of specialised or differentiated banks. These would be in the nature of payment or plain lending banks.

“The point is we should not be giving out licences once in 10 years… I would suspect a framework (towards differentiated and on-tap licences) in the next few months to develop and the process to start soon after. Of course, it will take some time for people to apply and the applications to be vetted. What we have learnt this time is how to do the vetting very carefully. That would be part of the process going forward,” Rajan added.

GREEN SIGNAL

  • Bimal Jalan panel submitted recommendations on new licences to the RBI on February 25
  • There were 25 applicants for the bank licences
  • EC today allowed RBI to grant new licences
  • RBI is expected to announce the winners in the next few days
 
 
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