Uncertainty continues over licences to new private banks

MUMBAI: The Reserve Bank on Tuesday said the uncertainty over issuing guidelines for new bank licences is likely to continue for some more time as it is in consultation with the government over the draft norms.

"There is some uncertainty about the time-frame for issuing new bank guidelines. We are discussing (the issue) with the Government," RBI Governor D Subbarao told reporters here today.

"We must see where we agree and if there is any difference of opinion, we must resolve that so the legislation for amendment to the Banking Regulation Act, which is a pre-condition for the new bank licence framework (is passed)," he said.

The RBI was hoping that the legislation would go through in the Budget session but it got curtailed. There is some uncertainty about the timeframe as some loose ends are still to be tied-up, he said. "I am hoping that sooner than later the guidelines will be ready," Subbarao said.

In the Budget 2011-12, Finance Minister Pranab Mukherjee had said the RBI plans to issue guidelines for the grant of new banking licences before the close of 2010-11. However, that deadline was missed.

The Reserve Bank had released the discussion paper on licensing of new banks in August 2010, seeking views of banks, NBFCs, industrial houses, other institutions, and the public.

The discussion paper reviewed the international and Indian experience on various issues and also indicated possible approaches with the pros and cons of each of the approaches.

Thereafter, detailed discussions were held with various associations of stakeholders from the industry, banks, NBFCs, and MFIs and some consultants in October, 2010.

Last month, the Finance Ministry said it is holding consultations with RBI and will approve the draft guidelines for granting new banking licences within 15 to 20 days. However, the guidelines have not been issued yet.

Various entities like Reliance Capital , India Bulls, Religare, IFCI and Aditya Birla Financial Services are said to be mulling an entry into the banking space.

India at present has 26 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, four local area banks, 1,721 urban cooperative banks, 31 state cooperative banks and 371 district central cooperative banks.

Talking about allowing more foreign banks in the country, the RBI in its policy statement said that the comprehensive guidelines on the mode of presence of foreign banks in India are being formulated, keeping in view the suggestions and comments on the discussion paper, received from all concerned.

A discussion paper on presence of foreign banks in India was released by the central bank in January 2011, inviting comments from stakeholders and public on the mode of presence of foreign banks through branch or wholly-owned subsidiary.

Source: EconomicTimes