Give preference to non-corporate sector for new banking licences: Rangarajan

Minimum capital requirement for opening a bank is Rs 300 cr draft rules put the amount at Rs 500 cr

The Reserve Bank of India (RBI), while allotting new banking licences, should give preference to the non-corporate sector, said C Rangarajan, chairman of Prime Minister's Economic Advisory Council.

“It is possible for the Reserve Bank to initially start with non-corporate business and find out whether there are suitable applicants and thereafter proceed to look at the other applicants,” he said, in an interview to PTI.

RBI is in the process of finalising the guidelines for giving new bank licences. Parliament approved the Banking Laws (Amendment) Bill last month.

The central bank, Rangarajan said, “should look at various types of financial institutions that are available currently and decide”.

COST OF POLICING THE BANK Cost of handling complaints at the offices of Banking Ombudsman
Year	Total Cost  (Rs crore)	Complaints Disposed	Cost per  Complaint
2009-10	19.74	83,335	2,368
2010-11	26.07	72,021	3,619
2011-12	28.11	72,889	3,858
Source: RBI
BOS in a nutshell
The total expenditure of the Banking Ombudsmen Scheme (BOS) is borne by the Reserve Bank of India (RBI). RBI, in its annual Banking Ombudsmen report for 2011-12, said compared with 2010-11, the aggregate cost of running BOS has increased by eight per cent while the cost per complaint has increased by seven per cent  BOS is run by RBI to provide redressal to grievances of bank customers. “The intention behind running BOS as a cost-free mechanism is to provide an easy access to an apex-level alternate dispute resolution mechanism for those bank customers who cannot afford other costly avenues of grievance redressal,” RBI said The regulator further said the use of BOS by companies, institutions and high networth individuals in the absence of any restrictive clause defeats its purpose and also adds to the running cost. This results in delay in resolution of complaints of common customers

“Many of the strong private sector banks today have been at one time or other in the financial system. They can look at these first and look at the others later on,” he said. On the Banking Laws Amendment Bill, he said what the new legislation does is giving additional power to RBI, particularly to remove the directors or change the board of directors, if it feels there was something wrong.

In the draft guidelines on new licences, business houses with successful track record and a minimum capital of Rs 500 crore were proposed to be allowed to set up commercial banks. Currently, the minimum capital requirement for opening a bank is Rs 300 crore.

According to the draft guidelines, companies primarily engaged in the real estate business or stock broking will not be eligible for promoting a bank. “Entities or groups having significant (10 per cent or more) income or assets or both from real estate, construction and broking activities individually or taken together in the last three years will not be eligible to set up new banks,” the draft said.

On foreign holding, it said the aggregate non-resident shareholding in the new bank should not exceed 49 per cent for the first five years.

At present, the foreign shareholding in private sector banks is allowed up to 74 per cent of the paid-up capital.

Over the last two decades, the RBI gave licenced 12 banks in the private sector in two phases — 10 in 1993 and two later. There are 26 public sector banks, seven new private sector banks and 15 old private sector banks.