Aspirants to get a year to set up banks: Sinha

New norms ‘much before’ March end, says RBI deputy guv

After receiving in-principle approvals from the Reserve Bank of India (RBI), banking aspirants would get a year to set up banks, RBI Deputy Governor Anand Sinha said today. He added the central bank would issue the much awaited final guidelines on new bank licences “soon”—“much before” the end of the financial year.

“We are in the process of issuing it (the final guidelines). We should issue it soon,” Sinha said at the sidelines of an event. On whether the norms would be issued before March-end, he said, “Certainly…much before that.”

Passage of the Banking Regulations (Amendment) Act in December, which vested more power with the central bank (as demanded by RBI Governor D Subbarao), made banking aspirants believe the new norms would be released soon. However, the finance ministry wanted RBI to change its stance on not granting such licences to brokerage firms and real estate companies. This delayed the process.

Sinha indicated the differences with the ministry might have been resolved. “Everything is settled now. We will be issuing the guidelines...much before this financial year ends,” he said. He, however, declined to comment on whether RBI had changed its views on allowing broking and real estate companies into the banking segment.

He said the regulator would render the corporate sector eligible to set up banks. “I cannot go beyond the draft guidelines because we cannot reveal what would be there in the final norms. In the draft guidelines, we have certainly made corporates eligible,” he said.

He also hinted while devising the norms for new bank licences, the risk of allowing corporate entities into banking had been factored in. Sinha gave a road map on the process RBI would follow in allowing new banks to start operations. He said once the final guidelines were released, aspirants would be given specific time to apply. The applications would be then evaluated by RBI. These would also be vetted by an external committee. “After all these…(once) the process is over, we will give licence in-principle. We will give them one year to set up banks,” he said.

He reiterated RBI’s stance that only a select few would be allowed to set up banks. “We have clearly said in our draft guidelines it would be a selective process…because banks are very important for the financial sector and people have to meet all the criteria...We don’t put a number around that…that would depend on the quality of the application,” he said.

In his Budget speech in February 2010, then finance minister Pranab Mukherjee had said new banks would be opened in the country. In August 2010, RBI had issued a discussion paper on the issue; after a year, it had issued the draft norms for this.