RBI gets green signal to issue bank licences

Ending weeks of uncertainty, the Election Commission (EC) on Tuesday allowed the Reserve Bank of India (RBI) to issue new bank licences. In a letter to the RBI governor, the EC said the central bank might take "necessary action as deemed appropriate as permissible under provisions of the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, and/or any other relevant law(s)."

The EC letter was in response to the RBI's March 12 request for guidance on whether it would be appropriate for it to go ahead with the announcement of in-principle approvals for banking licences in view of the model code of conduct for the Lok Sabha elections, which came into force on March 5.

"Since it was an RBI proposal and our queries were addressed to satisfaction, the commission deemed it appropriate to allow it. Also, we don't want to be seen as creating hurdles in policy matters," said an EC official, asking not to be named. The three-member poll panel - Chief Election Commissioner V S Sampath and Election Commissioners H S Brahma and Nasim Zaidi - arrived at the decision after deliberating on it for three hours.

A HURDLE CLEARED

• July 1, 2013: RBI releases names of 26 applicants; two of these drop out later, one is added
• Sep 4, 2013: RBI Governor Raghuram Rajan announces setting up a committee under former RBI governor Bimal Jalan to screen applications
• Feb 2, 2014: The Jalan committee gives its recommendations; drops tainted entities from contention
• Mar 8: Rajan says a few bank licences will be issued within weeks of the poll panel's approval
• Mar 20: EC raises questions on timing of RBI's proposal to issue new licences; seeks clarifications
• April 1: EC holds a meeting; allows RBI to allot new bank licences

The RBI is expected to announce the new licensees shortly. Earlier in the day, the RBI governor, while unveiling the bi-monthly monetary policy, said the central bank would expedite the process and grant licences once it got the EC approval. "Once they (EC) say there is no issue there, RBI will be in a position to announce the bank licences very quickly, after taking it to the committee of the central board (CCB)," Rajan said.

He said EC's nod was sought to ensure the process was transparent. "The notion of asking EC was primarily because this is the election season and we didn't want the potential licensees to get their approvals under a cloud. That is why we asked EC for their opinion."

Once RBI finalises the names of the candidates that will be given licences, these names will be placed before the committee of the central bank for its approval. The CCB meets once in a week and may take more than one meeting to give its approval.

The RBI had initially received 27 applications. But Tata Sons and Value Industries had withdrawn, leaving 25 entities in contention. The RBI had formed a high-level advisory committee under former central bank governor Bimal Jalan to screen the applications.

Public-sector India Post and IFCI and private-sector corporate houses the Anil Ambani group and the Aditya Birla group were among the 25 players in race, besides Bajaj Finance, Muthoot Finance, Religare Enterprises and Shriram Capital.

Over the past 20 years, the RBI has licensed 12 banks in the private sector in two phases. Ten banks were licensed on the basis of guidelines issued in January 1993. Kotak Mahindra Bank and YES Bank were the last two entities to get banking licences, in 2003-04.