No dearth of domestic capital for banking system: RBI

The Reserve Bank of India (RBI) feels that there is no dearth of domestic capital for the Indian banking system to support its growth.

"I'm not saying this with any foreign bias. The central bank is absorbing unused resources of over Rs 100,000 crore from the system. However, I am not saying that we don't need foreign capital at all," said Rakesh Mohan, deputy governor, RBI, at a conference on the ownership of and governance in private banking organised by the Confederation of Indian industry (CII) here today.

Mohan was responding to bankers and consultants who opined that the new guidelines on ownership of private banks would restrict the flow of foreign capital into the system.

Puneet Bhatia, managing director, New Bridge Capital, expressed serious reservations about the RBI draft guidelines.

"It is against the tenets of private equity funds, which are important and provide a perpetual source of capital. Banks will need more capital to keep up with economic growth and to meet the Basel II norms," Bhatia pointed out.

"We are looked upon as (part of ) a sinister world of investors. But we are actually active fund managers of pension and provident funds with a mandate to invest in markets that deliver returns," he said.

The RBI in July rejected New Bridge's proposal to invest in Global Trust Bank. The bank was first put under a moratorium and subsequently merged with the public sector Oriental Bank of Commerce. The RBI did not cite any specific reason for rejecting the New Bridge proposal.

"It is the weaker private banks that need smart money and management expertise to be agile and dynamic," said Bhatia. New Bridge is a private equity fund which holds stakes in a number of Indian private banks.

Mohan cited the examples of the recent public issues of the ONGC and Tata Consultancy Services which were over-subscribed "in a matter of hours in the Indian capital markets," as evidence of the availability of capital.

Leo Puri, director, McKinsey & Co, earlier in the discussion stated that the Indian banking system needs about $10-15 billion to stabilise.

Uday Kotak, vice chairman and managing director of Kotak Mahindra Bank, cited the examples of France, Germany, UK where there has been no limit on the ownership of private banks.

Bhaskar Ghose, managing director, IndusInd Bank said: "I don't think many of the promoters would have set up the new private banks if the promoters' holdings had been restricted to 10 per cent."

However, a few bankers supported the RBI's stringent proposed norms on ownership. Among them was Aditya Puri, CEO, HDFC Bank, who felt that capital would follow business and not regulation.