FinMin expects new bank licences by March

The finance ministry today said it was expecting the first set of new bank licences over the next few months.

“The Reserve Bank of India will issue banking licences in due course of time. We hope some of the licences will be issued this financial year,” financial services secretary R Gopalan said at an event organised by industry chamber, Assocham. He did not elaborate.

While Finance Minister Pranab Mukherjee had announced in his last Budget the RBI’s intent to consider fresh licences, so far Mint Road has only issued a consultation paper on the subject. The last date for receipt of comment was September 30. Mint Road officials had indicated the grant of licences could take anywhere between 18-24 months, as the norms needed to be finalised. In addition, the process of grant itself takes several months. Five years earlier, when the last set of licences was granted, the whole process had taken close to one and a half years.

This time, several players ranging from the likes of corporate houses such as Reliance, the Tatas, Larsen and Toubro and the Birlas have evinced interest in entering the banking space, along with non-banking finance companies Mahindra Finance, IFCI Ltd and Religare. Several others such as Life Insurance Corporation are awaiting the final guidelines before deciding their plan.

‘Key priority’
Mukherjee had said that the idea in granting new licences was to improve the access to banking services. In his address today Gopalan said financial inclusion is an important priority of the government, as only 38 per cent (32,000) of the 85,292 branches of scheduled commercial banks are in rural areas and only 40 per cent of the country’s population has a bank account

On last count, the country had 26 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 Regional Rural Banks, four Local Area Banks (LABs), 1,721 urban cooperative banks, 31 state co-operative banks and 371 district central co-operative banks.

In a discussion paper titled, ‘Entry of new banks in private sector’, the RBI had proposed to bring down the cap on foreign direct investment in banks to below 50 per cent from 74 per cent now. Asked about the finance ministry’s views on RBI’s proposal to ask foreign banks to operate as fully-owned subsidiaries, Gopalan said, “RBI is coming out with a paper. When they come out, we will know the various issues and address it.”

In its discussion paper, the central bank had invited comments on minimum capital requirements for new banks, limit on promoter shareholding, foreign shareholding in new banks and allowing industrial houses in the banking sector, among others. RBI had said it would give limited licences. It had asked for comments on independence and neutrality of banks controlled by industrial houses and NBFCs with interest in the real estate sector. Recently, the RBI also met industry bodies to get their views on allowing new entrants in the banking space.