Companies with ambition of setting up a bank will have to wait longer. The much-hyped grant of new bank licences has been put on the back burner, as the government is not keen to go ahead.
Sources familiar with the developments said the government had conveyed its view that the matter be set aside to RBI, the authority for issuing fresh licences.
RBI had framed draft guidelines for new bank licences and submitted these to the finance ministry for its views. The ministry is yet to formally get back to RBI.
The sources said the government, facing heat in the 2G scam for granting licences to private sector telecom companies, did not want another potential controversy.
“RBI and the government had reached a consensus on most of the important issues in the draft guidelines, including grant of licences to corporate houses. The government had also agreed to amend the RBI Act to vest more power with the regulator. Things have slackened after that,” said a source.
Following an announcement by the finance minister in the Budget, RBI last year initiated the process for issuing fresh licences by publishing a discussion paper inviting comments from the public. The paper highlighted several issues such as the initial capital requirement, promoter shareholding and whether industrial houses should be allowed to open banks.
Several corporate houses, including the Tata group, the Birlas and L&T, had shown interest in foraying into banking. Several non-banking finance companies and microfinance companies also showed interest. RBI, however, made it clear that companies related to the real estate sector would not be allowed to enter banking.
After the financial sector reforms of the early 90s, the guidelines for giving new bank licences to private sector entities were issued in January 1993 and revised in January 2001. The objective was to instill more competition in the banking system to increase productivity and efficiency. Ten private sector banks were set up after the 1993 guidelines and two after the 2001 guidelines.