RBI Governor briefs MPs on new bank licences

Concerned over the possibility of crony capitalism creeping into the banking sector with the grant of new licences to business houses, members of a Parliamentary panel today asked RBI Governor D Subbarao to give a structured response on the issues flagged by them.
Members of the Parliamentary Standing Committee on Finance quizzed the RBI chief on central bank's guidelines for awarding new bank licences, sources said.
Subbarao made a presentation before the Committee on the proposal for the new bank licences for which applications have been invited from corporates and public sector entities by July 1.
The members wanted to know how the RBI proposes to prevent diversion of funds by industrial houses owning banks to their own companies and prevent crony capitalism, citing example of coal and telecom sectors.

Some members cautioned the RBI against adopting auction route for grant of bank licences, arguing that it could encourage industrial houses with doubtful credentials to obtain licence.
The issue of Cobra Post expose with regard to allegations of money laundering by ICICI Bank, HDFC Bank and Axis Bank was also raised during the meeting. Subbarao is reported to have informed the members that the central bank was in the process of examining the allegations.

The members wanted to know how RBI would ensure compliance of the guidelines with regard to fit and proper criteria and mandatory opening of rural branches by the new banks.

The Governor, sources said, "was forthcoming in his replies and has indicated that new licences will be issued after thorough scrutiny of applications".
As per the guidelines issued by the Reserve Bank earlier, the minimum paid-up capital for setting up a bank has been pegged at Rs 500 crore. The cap on the foreign investment, including FDI/FII and NRI, has been set at 49 per cent.