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Hope for unlucky bank bidders

Mumbai, April 2: The crestfallen applicants for banking licences who failed to make the cut on Wednesday need not lose hope.

The Reserve Bank of India (RBI) is all set to tweak its existing guidelines while creating a new framework for the award of “on-tap” banking licences.

The entities whose applications were rejected in this round will be allowed to apply for full-fledged banking licences or a new class of differentiated licences under which they will be permitted to offer niche or specialised banking services.

These entities will be allowed to convert themselves into full-fledged banks at a later stage.

These are the indications that came out from the central bank after it cleared the applications of two entities — IDFC Ltd and Bandhan Financial Services Pvt Ltd — to set up banks after a long-winded process that began in 2011.

However, their selection also meant disappointment for 23 other applicants, including big names such as Reliance Capital, LIC Housing Finance, L&T Finance Holdings, Aditya Birla Nuvo and Bajaj Finserv to name a few.

These entities can, however, submit their applications to the RBI once it is ready with the new framework of issuing on-tap and differentiated licences.

“The RBI believes that some of those entities who did not qualify in this round for a full-fledged banking licence could well apply in future rounds or could apply for differentiated licences under the proposed framework,” it said in a statement that announced the in-principle approval to Bandhan and IDFC.

More importantly, the central bank said it would use the learning from this licensing exercise to “revise” the guidelines appropriately and move to give licences more regularly, that is, virtually on-tap.

Banking circles do not rule out the possibility of the RBI diluting some of the tough guidelines while issuing licenses on-tap — a sort of continuous process where an entity can apply for a banking licence whenever it feels it is ready to enter the space.

It may be recalled that two of the nation’s prominent industrial houses — the Tatas and the Mahindra group — had dropped out of the race last year citing tough norms.

The Tatas had said the rigid corporate structure that the RBI had mandated for all financial services companies made it difficult for a conglomerate that had operations spread across the world to cope with some of the onerous conditions.

On the other hand, Mahindra & Mahindra Financial Services said it was not going ahead with plans to set up a bank as the RBI guidelines did not provide any flexibility for an NBFC and a bank to co-exist for a reasonable period of time.

On Tuesday, RBI governor Raghuram Rajan had elaborated on its proposed framework to dish out differentiated and on-tap licences. He had said the framework would be established over the next few months.

Rajan had then also indicated the entities that secure the differentiated licence (banks with specific activities such as payments or lending) could also apply for a full banking licence down the line.

“We hope to open the window quite soon. We may open the window first for differentiated licences, for example, payment banks, and then move on to universal banks. But the hope is to make it an ongoing process,” he said when asked to set the timeline for the new procedure.

Banking circles, however, sounded a note caution. They said the views of the next government at the Centre could have a bearing on the entire process.

It may be recalled that some leaders of the BJP had expressed their displeasure over the haste the RBI had shown in handing out the new banking licences.

 
 
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