The Telegraph
Friday , November 16 , 2012
Since 1st March, 1999
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Push for new bank licence

New Delhi, Nov. 15: The government has asked the Reserve Bank of India to finalise the rules for new banking licences and also start the process of vetting applications, while it proceeds to make the enabling legislative changes.

“We have written to the RBI recently, urging them to finalise the guidelines and proceed to receive applications for new banking licences in anticipation of the amendment in the banking regulation act,” finance minister P. Chidambaram told newspersons after a meeting with the chief executives of state-run banks here today.

According to the RBI’s draft norms released last year, private entities, or groups owned and controlled by Indian promoters, with diversified ownership, sound credentials and a successful track record of at least 10 years will be eligible to promote banks.

Some who fulfil the criteria are the Tatas, Reliance and Bharti.

In the 1960s, after a string of collapses, the government had nationalised most large banks and banned large corporate entities from entering the sector. Since then, only some merchant bankers and financial firms had amassed sufficient expertise and experience to graduate into private banks.

The draft norms have also kept the minimum capital for promoting a bank at Rs 500 crore and restrict foreign shareholding at 49 per cent.

“We have written to the RBI and hope that it will pick up the thread and finalise the guidelines and start receiving the application,” Chidambaram said.

The minister said the “power or the authority” which the RBI wanted was already available in other provisions of the law and with the central bank’s own guidelines for new banking licences.

“We are only formalising them by amending the banking regulation act. I have assured the RBI that the act will indeed be amended, hopefully in the winter session (of Parliament), if not in the winter session then in the budget session.”

Chidambaram, however, pointed out that even if the RBI started the process now, the first batch of new licences was unlikely to be issued before the second quarter of next year.

“So, by the time the licences are issued and the banks come to existence and the banks begin to function, the act will have been amended,” he said.

Capital infusion

Chidambaram agreed that state-run banks might need capital infusion, given the high levels of non-performing assets.

Officials said the government would soon work to infuse capital in state-run banks such as the Central Bank of India, Bank of Maharashtra and Indian Overseas Bank.

The minister indicated that the government would work out a strategy to assist industry reeling from economic slowdown.

“If the economy improves and growth improves, the sectors (which are not doing well) will recover. But, in the meanwhile, we will have to do some handholding and try to help these sectors recover,” he said.

Admitting that “NPAs are a reflection of slowdown in the economy”, Chidambaram said it was not an alarming situation and the economy was not contracting.

The non-performing assets of state-run banks have risen nearly 1 per cent in the one-year ended September 2012 because of the stress faced by sectors such as infrastructure, steel, construction, textile, food processing and telecom infrastructure.

Kisan cards

The finance minister said all Kisan Credit Cards would be converted to ATM cards and the credit disbursal target for the agriculture sector of Rs 5.75 lakh crore, up from Rs 4.75 lakh crore in the last fiscal, would be met.

A new draft of the credit guarantee scheme will be placed before the cabinet in the next seven to 10 days, the minister added.