Many more entities will get banking licences: G S Sandhu

Interview with Secretary, Department of Financial Services

The Reserve Bank of India (RBI) on Wednesday granted in-principle licences to infrastructure lender IDFC and microfinance company Bandhan Financial Services to set up banks, but left out large companies such as Aditya Birla Nuvo, L&T Finance Holdings and Reliance Capital. Financial Services Secretary G S Sandhu tells Vrishti Beniwal the central bank has only made a beginning, adding the door for industrial houses isn’t closed, as both the finance ministry and RBI believe licences can be given on-tap. Edited excerpts:

Why didn’t any large company qualify for a bank licence in this round?

We are not privy to the reason behind this. But I’m sure there must be a good reason. A good beginning has been made and, subsequently, many more players will come.

Do you think large corporate houses should get bank licences?

There cannot be a simple reply to this, as it will depend on the objectives behind that, as well as the credentials and track record of the corporate house. Banking is a very delicate area, particularly if it is a corporate house. You have to see how the funds will be deployed. So, this is an issue that has to be discussed and considered very carefully.

Did the finance ministry expect only two licences would be given in the first round?

Even if it is two, the good thing is we have made a beginning. Now, the thinking at the government and RBI levels is we should have a system through which licences can be given on an on-tap basis. So, why have deadlines? You declare the eligibility and the conditions and if any entity meets those, it can be considered. If other players are eligible, they will come in.

Besides licences on-tap, RBI is also planning a differential licensing system. How soon could this happen?

New policy guidelines have to be considered and, subsequently, that could also be taken up. Some entities might like to work in particular segments such as affordable housing, low-income groups and economically weaker sections. There could be various such segments.

How will you ensure these new banks aren’t clones of existing banks?

I’m sure RBI, being the regulator, will take all safeguards. As part of the approval process, too, safeguards will be put in place.

RBI has said it will discuss India Post’s application with the finance ministry, as suggested by the Bimal Jalan-headed screening committee. Do you think it should get a licence?

That will happen sometime in the future. Whether India Post is to be considered needs to be deliberated upon and if so, the circumstances and conditions involved and what more is required to enable it to discharge this function.

What are the strengths and weaknesses for India Post as a bank licence applicant?

I’m not privy to this. We are yet to study it. Hopefully, we will do that in the near future. The postal department will also be involved in the consultations.

When there are so many public sector banks already and the finance ministry wants to consolidate some of these, what purpose will another state-run lender serve?

As I said, we have to go deeper into the issue.