The fact that the central bank has started exploring the possibility of allowing industrial houses for banking activities has made prospective entrants cheerful but some of the conditions the Reserve Bank of India (RBI) want to impose may make them edgy.
An RBI concern, as emerged from the discussion paper on granting fresh banking licences, is how to safeguard from the downside risks of industrial and business houses promoting banks. RBI has proposed that ‘no objection certificates’ relating to promoters’ integrity and credentials should be not only asked from banks and regulatory entities but also from investigating agencies such as the Central Bureau of Investigation (CBI), enforcement directorate and income tax departments.
The intent of this condition (NOC from CBI and income tax, etc) does not seem to be to stop corporate or business houses from setting up a bank. It is an effort to run a check on antecedents, said N Takker, managing director of Icra, the credit rating agency.
“Even the best of companies will have tax cases or disputes, which take time to resolve. This should not become a barrier for corporate and business houses which meet other stringent norms to set up a bank,” he added.
“The discussion paper has been a pleasant deviation from the existing thinking. The regulator has taken a very rational view on the matter and has not precluded any category of promoters, except those having business interests or links with real estate sector,” said Ashvin Parekh, partner, Ernst & Young.
RBI emphasised that industrial houses promoting banks must have diversified ownership and stringent limits on transactions between the bank and other entities in the group should be imposed.
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“To contain the possibility of ‘holding out’ if an industrial / business house comes under severe stress, industrial and business houses may not be allowed to use the brand name and logo of the group,” RBI said.
That the banking regulator has realised the importance of increasing the number of banks for extending financial inclusion has also been viewed as a positive by some industrial houses. “The paper ensures that only serious players with experience can apply for a banking licence. It has clearly indicated that the minimum capital requirement will be more than Rs 300 crore. In the discussion paper, RBI is encouraging entrants who have the ability to build profitable banks and can go deeper into India. For example, 75 per cent of our life insurance business are sold outside towns, in semi urban and rural areas,” said Sanjiv Bajaj, managing director and chief executive officer of Bajaj Finserv.