RBI won’t open licence floodgates
Several corporates aspiring for banking licences may end up being disappointed with the Reserve Bank of India’s licencing policy. As against the hopefuls who run into several dozens, the central bank is likely to grant licences to only a handful that it feels may make the mark.
“It is likely that RBI will set out the filters in addition to the capital requirement to identify which are the banks that will qualify,” said Ashvin Parekh, partner, National Industry Leader for Global Financial Services, Ernst & Young. He adds that RBI is likely to consider the “systemic risk point of view”. “From a systemic risk perspective, those in diversified businesses pose a lesser risk,” he adds, giving the example of the steel industry where even very large players lost value and had to go for some form of restructuring. The other factor would be the ability of the corporate to provide capital in a difficult situation like during the financial crisis in 2008.
A host of corporates are preparing the ground to apply for a bank licence. Hopefuls include the Tatas, Aditya Birla Group, and Reliance Capital. Bajaj Financial Services, too, has evinced interest in obtaining a bank licence. In the financial sector, LIC Housing Finance and Shriram Transport Finance are among those keen on setting up banks. Besides, there are a host of other corporates that are keen on obtaining a banking licence. Last week, RBI deputy governor Anand Sinha said that the central bank would come out with draft guidelines for new bank licences “very soon”.
According to Monish Shah, director, Deloitte in India, RBI is unlikely to have a limited period window. “If they accept applications for only a limited period, they would end up choosing those who have prepared their applications early rather than choosing the best of breed.”
The other issue to watch out for in the draft guidelines would be how RBI defines the fit and proper guidelines. In its discussion paper, the central bank had said that a corporate aspiring for a licence should get a clean chit from all enforcement authorities. But in the wake of scandals in the telecom sector where most of the big business houses have come under the scanner, it is not clear how RBI will address the governance issue.
The finance minister had first said in his Budget speech last year that the central bank would come out with new bank guidelines. This was reiterated in his budget speech in February this year. The central bank responded to this call from the government by coming out with a discussion paper where it expressed a host of concerns on granting licences to corporates. RBI had also ruled out giving licences to builders or groups which have a large real estate business.
Post liberalization, when RBI opened its banking licence window in 1992, the central bank received as many as 154 applications. Although RBI did not immediately reject them, it granted licences to only nine and rejected pending proposals in a phased manner over a decade.
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