Though the much-awaited draft norms for new banking licences were announced by the Reserve Bank of India (RBI) on Monday, prospective banks may have to wait before starting operations, since the central bank plans to follow an elaborate and foolproof process before allowing new entrants into the segment.
RBI had last issued final guidelines for new banks in 2001. It took the regulator another two-three years for granting approvals for the commencement of business. After feedback on the draft norms, the deadline for which is October 31, RBI would issue the final guidelines after ‘vital amendments’ to the Banking Regulation Act, 1949, the central bank said. Last week, RBI Governor D Subbarao had emphasised on the need to amend the act for giving fresh licences, which may take time.
Once RBI receives the applications, these would be screened to ensure the eligibility criteria are met. At the same time, the central bank would impose additional conditions to determine the suitability of the applications. The banking regulator has categorically said meeting the eligibility criteria does not automatically guarantee a banking licence.
| THE CONTENDERS |
| * Aditya Birla Group |
| * L&T |
| * Mahindra & Mahindra |
| * Bajaj FinServ |
| * Shriram Capital |
| * Srei Infrastructure |
| * Reliance Industries |
| * Reliance Capital |
| * Bharti Group |
| * IFCI |
| * PFC |
“Banking being a highly-leveraged business, licences shall be issued on a very selective basis to those who conform to the above requirements, who have an impeccable track record and who are likely to conform to the best international and domestic standards of customer service and efficiency. Therefore, it may not be possible for the Reserve Bank of India to issue licences to all the applicants that meet the eligibility criteria prescribed above,” RBI said. After screening the applicants, the applications would be sent to a high-level advisory committee comprising eminent personalities from both within and outside the financial sector. The committee, to be set up by RBI, would have its own procedures for screening the applications and can seek more information from applicants. Though the advisory committee would submit its recommendations to RBI for consideration, it is the banking regulator which would take the final call.
“The decision to issue an in-principle approval for setting up a bank would be taken by RBI. This decision will be final,” RBI said. To ensure transparency, names of all the applicants would be put up on the RBI website. The bank would have to be set up within a year of granting the in-principle approval. RBI would reserve the right to withdraw the in-principle approval if there is any evidence of self dealing.
“I think the final guidelines would come by the end of this year. Non-banking financial companies and corporates would have to understand the norms and make adjustments. So, the actual licensing would happen only in the second half of 2012,” said Viren H Mehta, director, Ernst & Young.