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Wait for banking licence norms set to get longer

FinMin advice to include brokers & realty firms, debate over entry of industrial houses slow the process

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The final guidelines for new banking licences could take a while, contrary to expectations that the Reserve Bank of India () would announce those by month-end. Banking aspirants have been keenly awaiting the norms since the draft guidelines were issued about a year and a half back.

The process has hit a roadblock, mainly on two counts. First, the finance ministry has suggested that real estate and brokerage companies be considered eligible for setting up banks. This is at variance with the central bank’s draft norms that ruled out entry of such entities in the banking space. According to RBI sources, this has delayed the process as the central bank now has to reinforce its earlier logic on why these companies should not be allowed.

Second, some recent comments of entities like the that industrial houses should not be allowed in banking have made RBI rethink the issue. “International experience has supported the prudent policy position of disallowing industrial houses from promoting and owning banks,” an IMF report, ‘Financial system stability assessment of India’, had pointed out.
 

THE STORY SO FAR
  • Feb ’10: FM’s Budget speech says RBI will issue fresh bank licences to industrial houses, NBFCs
  • Aug ’10: RBI issues discussion paper on new bank licences
  • Aug ’11: RBI issues draft norms 
  • Jul ’12: Feedback of draft norms made public, existing banks oppose the move
  • Dec ’12: Parliament passes , giving RBI more powers such as superseding bank boards, as demanded by the regulator

Recently, Nobel laureate had also advised against giving industrial houses licences to set up new banks. Prime Minister’s Economic Advisory Council Chairman had said preference should be given to non-corporate sectors.

According to sources, the comments from important think tanks and policy makers have made RBI revisit the issue of allowing industrial houses in banking. In both the discussion paper and the draft norms, it was open to the idea of allowing corporate sector in the banking space.

Expectations that new norms would be announced soon had gathered pace after Parliament passed the Banking Laws (Amendment) Bill in December. The Bill vested more power to the banking regulator – a precondition set by the latter for issuing the final guidelines.

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