Parliamentary panel against entry of corporate houses in banking space

The panel, headed by Yashwant Sinha, also recommends doubling of initial paid-up capital to Rs 1,000 cr

The Parliamentary standing committee on finance has raised concerns on issuing of banking licences to corporations at a time when the Reserve Bank of India (RBI) is scrutinising the applications for new lenders.

The panel, headed by Bharatiya Janata Party leader and former finance minister Yashwant Sinha, also recommended in a report doubling the initial paid-up capital to Rs 1,000 crore against Rs 500 crore as mandated by RBI. The panel warned against discretionary powers given to RBI for new licenses, saying this might lead to irregularities in this area, at a time when already various scams are flying thick and fast, people aware of the development said.

Incidentally, Congress vice-president Rahul Gandhi is also part of the panel, but there is no dissent note added to the report. This means that the Nehru-Gandhi scion has once again concurred with points against the Congress' own government's policies.

CONCERNS GALORE

• The panel warned against discretionary powers given to the Reserve Bank of India (RBI) for new licences, saying this may lead to irregularities in this area
• Incidentally, Congress Vice-President Rahul Gandhi is also part of the panel, but there is no dissent note added to the report
• Those aware of the development said members in the report incorporated concerns over giving licences to corporates
• The RBI can reject or accept an application on the basis of fit and proper criteria, which members said are ambiguous
• As many as 26 applications had been received for bank licences on the close on July 1, 2013
• Firms controlled by Tatas, Anil Ambani  and Kumar Manglam Birla have applied for licences
• In the past 20 years, the RBI has licensed 12 banks in the private sector in two phases. Ten banks were licensed on the basis of guidelines issued in January 1993

The issue here is how these recommendations would matter since RBI is already in the process of scrutinising applications for banking licences, said a banking sector expert, who asked not to be named. It would be difficult to amend the RBI guidelines at this moment, unlike an Ordinance which could be withdrawn, he added.

However, in an extreme situation, Parliament can always mandate RBI to certain direction by amending relevant laws, the expert added.

According to sources, members in the panel cited several other key economies that have not given banking licences to corporate houses. Earlier, the International Monetary Fund had also warned against giving banking licences to industrial houses.

However, RBI's discussion paper on new banking licence in August, 2010 said most developed countries such as Australia, Canada, the European Union, Germany, France and the UK did not specifically restrict companies from setting up banks, but limit the percentage of voting rights and controlling positions that any shareholder could obtain with the prior approval of the regulatory authorities.

RBI can reject or accept any application on the basis of fit-and-proper criteria, which members said are ambiguous.

As many as 26 applications had been received for bank licences on the close on July 1, 2013. Firms controlled by Tatas, Anil Ambani and Kumar Manglam Birla have applied for licences.

Currently, RBI is scrutinising these applications. After that, a committee headed by former RBI governor Bimal Jalan will look into them. In the past 20 years, RBI has licensed 12 banks in the private sector in two phases. Ten banks were licensed on the basis of guidelines issued in January 1993. Kotak Mahindra Bank and YES Bank were the last two entrants.