Ministries spar over due-diligence reports

DFS writes to departments that haven't responded to RBI's request for information

The Department of Financial Services (DFS), in the finance ministry, has criticised the corporate affairs ministry for not responding to the Reserve Bank of India's (RBI's) request for "due-diligence reports" on 22 of the 25 companies that had applied for banking licences earlier this year.

The intervention is significant because RBI Governor Raghuram Rajan had set January 2014 as the deadline for awarding these licences. And, the availability of "due-diligence" reports on these companies are critical for the committee set up under former governor Bimal Jalan to meet that deadline. The need for these reports to be completed becomes more crucial as the committee is expected to carry out the first-level screening of applications to set up new private banks at its second meeting, scheduled for December 16.

Intervening on RBI's behalf, DFS said in a communication a few days ago that the central bank had written in September and October to various investigative agencies, as well as domestic and foreign regulators, requesting information on the 25 applicants and their group entities. However, making its unhappiness clear, DFS said the departments requested to give their views had not responded in most cases; in others, the response was limited.

Talking specifically about the corporate affairs ministry, the department said no response had been received in the case of 22 applicants. It has now asked the ministry to expedite submission of the due-diligence report to RBI, so that grant of licence to eligible entities can be processed.

DFS has sent similar communications to the Enforcement Directorate, the Department of Revenue Intelligence, the Central Bureau of Investigation, and the Securities and Exchange Board of India.

Among the companies whose applications are being examined are the Aditya Birla Group, Bajaj Group, Reliance ADAG, Larsen & Toubro, SREI, Religare, LIC Housing Finance, JM Financial, Muthoot Finance, Edelweiss, IDFC, India Infoline, Shriram Capital, Indiabulls and IFCI.

The plan was that the Jalan-led committee, based on a screening on December 16, would reject applications that did not meet the eligibility yardstick or the 'fit and proper' criteria for securing licences.

The advisory committee had its first meeting on November 2. Besides Jalan, the committee has former RBI deputy governor Usha Thorat, former Sebi chairman C B Bhave and RBI Director Nachiket M Mor as members.

Of the applicants for banking licences, two -Tata Sons and Value Industries - have withdrawn from the race. The Bajaj Group is also trying to resolve some internal issues, as all of a group's financial service businesses are required to be consolidated in the bank, if it gets a licence. Bajaj Auto says the move will adversely affect its business, as 30 per cent of its automobile loans are through Bajaj Finance, which has applied for a licence.

RACING AGAINST TIME
|APPLICANTS: 26 companies applied for banking licences earlier this year
|DUE DILIGENCE: RBI sent letters to various agencies and domestic & foreign regulators in September and October, requesting them to share information on the applicants and their group entities

|DEADLINE: RBI set January 2014 as the deadline for issuing the first batch of licences
|COMMITTEE: RBI set up an advisory panel, under former governor Bimal Jalan, which met for the first time on November 2
|OUT OF FRAY: Tata Sons and Value Industries have already pulled out of race for licences