'New bank licences 8-9 months after enabling legislation'

RBI said a panel would be set up to vet the applications of prospective entrants

A day after Finance Minister P Chidambaram said he had urged the Reserve Bank of India (RBI) to start the process of finalising norms and receiving applications of prospective entrants in the banking sector in anticipation of a change in the Banking Regulation Act, Governor D Subbarao today reiterated RBI was ready to launch the process, but indicated new players would be allowed only after the Act was amended.

He said RBI was likely to take eight to nine months to issue the first licence once the process was started. Earlier, RBI had said a committee would be set up to vet the applications of prospective entrants.

RBI had made it clear that it wanted more powers, such as to supersede a bank’s board, before it allowed new entrants in the sector.
 

ENTRY BARRIER

• 26 February, 2010: Former finance minister and now president, Pranab Mukherjee, announces in his 2010-11 Budget speech that corporate and business houses will be allowed to set up new banks
• 11 August, 2010: RBI releases discussion paper on entry of new banks in the private sector
• 23 December, 2010: RBI releases gist of comments from the feedback on the discussion paper
• 29 August, 2011: RBI releases draft guidelines for licensing of new banks in pvt sector
• 10 July, 2012: RBI releases gist of comments from the feedback on draft guidelines

“We’ve been prepared to launch this process but all the groundwork and enabling conditions for launching this work have to be fulfilled,” news agencies quoted Subbarao as telling the media on the sidelines of a conference in Pune today. In a recent report on the sector, the regulator had said even the final norms would be issued only after the Act was amended.

“There is a road map and we have written to RBI, urging it to proceed to finalise the guidelines and receive applications for new bank licences in anticipation of the Banking Regulation Act being amended,” Chidambaram had said yesterday. He had also said that he hoped the Act would be amended during the forthcoming winter session or Budget session of Parliament.

“...The first occasion to exercise those extraordinary powers will not arise the next day. It will arise much later. So, by the time the licence is issued and the bank comes into existence and begins to function, the Act would have been amended,” the finance minister had said.