'RBI to issue draft norms on new bank licences soon'

The Finance Ministry today said the Reserve Bank will come out with the draft guidelines on new bank licences soon.

"The RBI has given it (recommendations) to the Finance Ministry and is also consulting other stakeholders. Based on this, they will come out with draft guidelines (on new bank licences) soon and put it in the public domain for consultation," Department of Economic Affairs (DEA) Secretary R Gopalan said on the sidelines of the 26th Skoch Summit here.

Last year, RBI circulated a discussion paper on new bank licences which proposed that corporates and NBFCs should be allowed to promote banks.

Gopalan also stressed on the need to amend the Banking Regulation Act to empower the RBI to effectively regulate the banking sector.

"...There is a need to amend the Banking Regulation Act to enable RBI to obtain information from other entities -- whoever is getting a licence -- so they (RBI) are in a position to regulate the banking sector institutions appropriately," he said.

On the timeline of the issuance of new bank licences, the the Secretary said it can be done once the amendments to Banking Regulations Act are cleared by Parliament.

"I have a feeling that the draft guidelines, once they are out, the Amendment to Banking Regulations Act I think will be passed. I think this will be the right setting for licences to be issued," Gopalan said.

The Banking Laws (Amendment) Bill, 2011, was introduced in the Lok Sabha during the Budget Session, which seeks to give voting rights to investors commensurate with their shareholding in the private sector banks.

The draft legislation also proposes to give powers to RBI to supersede the Board of Directors of a banking company for a period of up to one year and appoint an administrator.

On the country's economic growth in the current fiscal, Gopalan said, "It should be between 8 to 8.5% depending upon how long the prices continue to remain at elevated levels. That we do not know at this point of time as it's just two months that we are into the new fiscal".

India's economy grew by just 7.8% in the fourth quarter ending March this year, mainly due to the poor performance of the manufacturing sector, as against 9.4% in the same three-month period of the previous fiscal.

However, economic growth, as measured by the Gross Domestic Product, improved to 8.5% in 2010-11 from 8% in 2009-10 due to better farm output, construction activities and financial services performance.