Ashvin Parekh, partner, Global Financial Services, Ernst &Young, tells Sunaina Vasudev that new banking licences are the need of the hour. Excerpts:
What are the salient features of the discussion paper on new banking licences?
The need for more banking licences has been recognised due to many reasons. One being the natural credit growth. It is expected that if the economy was to grow at or above eight per cent, the expansion will require a certain order of capital.
Also, banks need capital for infrastructure development to enhance domestic distribution services and reach out to communities and villages.
Then, there is Basel-III, which will require a different order of capital provisioning.
There is clear encouragement for non-banking finance companies (NBFCs) to convert into banking entities. The only challenge for them is if they are engaged in businesses that come under Section VI or XII, especially XII, due to the contagion risk.
What number of licences do you think the Reserve Bank of India (RBI) will be granting?
Considering the above mentioned factors and the conditions laid out for industrial houses and NBFCs, my sense is that four-five licences will be given, two to NBFCs and two-three to large industrial houses with a diversified shareholding.
What is the timeline?
After the comments are received, an external committee will consider them and then pass them to the regulator. RBI will look at the summary and take about three months to address the concerns to finally release the policy discussion paper. I think the first licence will be given in 10-12 months.