Draft norms on new bank licences by Jan: RBI

Moving close to issue banking licences to new players, the Reserve Bank today said it will issue by January draft guidelines on entry of new banks, a space being eyed by a host of corporates like Reliance Capital, Tata Group and AV Birla Group.

"Based on the comments and suggestions received from various parties and discussions held with major stakeholders in October 2010, it is proposed to put the draft guidelines in public domain by end of January 2011," RBI said in its second quarter policy review.

RBI, in August, brought out a discussion paper on giving out new banking licences to business houses and non-banking finance companies to increase competition in the sector, and to formulate regulations for it.

The apex bank had said it may allow limited entrants, but was apprehensive about the independence and neutrality of banks controlled by industrial houses.

Besides, it disfavoured the entry of non-banking financial institutions with realty interests, and sought public comments on the issue of entry of private players into the banking arena.

Last week finance ministry had said it expects the RBI to issue banking licences to some new players by the end of this fiscal. "We hope some of the licences will be issued this financial year," Financial Services Secretary R Gopalan had said.

Among the corporates which are aspiring for the licence are Reliance Capital, Tata Group, AV Birla Group and L&T. Also, NBFCs like Shriram Finance, LIC Housing, Mahindra Finance and IFCI are keen to start a bank.

Earlier this month, the central bank met representatives from the India Inc, to get industry view on allowing new players in the banking segment.

In a discussion paper titled, 'Entry of New Banks in Private Sector', RBI also mooted the idea of bringing down the cap on foreign direct investment in banks to below 50 per cent from 74 per cent now.

Drawing a lesson from global financial meltdown, RBI said it will soon come out with a discussion paper on the mode of presence of foreign banks. The paper will basically deal with the issue whether foreign banks be allowed entry through subsidiaries or branches.

"A discussion paper in consultation with the Government on the form of presence of foreign banks in India is in final stages of preparation," RBI said.

Global financial meltdown was basically blamed on loose regulatory norms on banks, particularly investment banks.