Draft norms on new bank licences by Jan-end

The Reserve Bank of India (RBI) today said that public opinion on granting new bank licences was divided. RBI would study the matter and come out with draft guidelines on new bank licences by January-end, Governor D Subbarao said.

RBI would make public the gist of the feedback on its discussion paper within the next ten days, he said.

“We discussed the status of new bank licences at the meeting. We will put out the gist of the feedback on our discussion paper from various stakeholders by next week and will issue draft guidelines by January 2011,” said Subbarao.

In the discussion paper, RBI listed issues like the initial capital required, ways of diluting promoters’ stake, whether corporate houses and non-banking finance companies should be allowed to set up banks and the business model that should be adopted for new banks.

“We have got an entire spectrum of opinion on these issues. Public opinion is divided. For example, on entry of companies, some people said they should not be allowed, while some said they should be as times had changed,” he said. Similarly, there was a broad spectrum of opinion on initial capital and dilution of capital, he said.

As of March 31, 2009, the banking system comprised 27 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, four local area banks, 1,721 urban cooperative, 31 state co-operative and 371 district central co-operative banks, according to RBI data.

Finance Minister Pranab Mukherjee, in his last Budget speech, had suggested the need for more banks.

Interim relief for MFIs expected
With banks not lending to microfinance institutions (MFIs), RBI might take interim measures after meeting bankers shortly.

“We consulted the board regarding interim measures to MFIs till the Malegam Committee submits its recommendations and they have agreed. We will now call a meeting of banks within the next two weeks to see what can be done in the interim period,” Subbarao said.

The central bank had set up a committee under Y H Malegam to examine the issues confronting MFIs, including their interest rate structures.

The committee might submit its recommendations before its deadline of January 2011, said Subbarao.

“The Malegam Committee has informed us that it is actively working on the issue. It plans to visit Andhra Pradesh next week and meet the chief minister and other stakeholders. It will try to give the report before January,” he said.

No transgression in loan sanctioning process in housing scam
RBI said it was going into the details of the accounts involved in the housing finance scam recently unearthed by the Central Bureau of Investigation, though there had been no transgression in the loan sanctioning process.

“RBI has studied the accounts after getting information from banks. There has been no transgression in the sanctioning process. All loans have been sanctioned according to the established procedures,” Subbarao said.

Of the 14 accounts involved, 13 were found to be standard. One account was in default, but for reasons other than the scam, he said. The department of banking was going into the details under the supervision of RBI, he said.