New bank licences only after RBI Act amendment

The banking regulator has made it clear that it needs more power before it could invite new entrants

Ending speculation that the Reserve Bank of India (RBI) may issue final guidelines for fresh banking licences without the amendment of the Banking Regulation Act, the central bank on Thursday said that neither the final norms nor the process for inviting application could be done without changing the law.

Despite pressure from the finance ministry to allow new banks, the banking regulator has made it clear that it needs more power — like to supersede bank boards — before it could invite new entrants.

“As indicated in the draft guidelines, certain amendments to the Banking Regulation Act, 1949 are under consideration by the Government of India, including a few that are vital for finalisation and implementation of the policy for licensing new banks in the private sector. The final guidelines will be issued and the process of inviting applications for setting up new banks in the private sector will be initiated only after the Banking Regulation Act is amended,” said the central bank.

In February 2010, while presenting the Budget, the then finance minister Pranab Mukherjee had announced that the RBI would consider issuing fresh licences to private players and non-banking financial entities.

After that, in August 2010, the RBI released a discussion paper taking into account international practices and experience with private sector banks.

The draft guidelines were released in August 2011, specifying the conditions relating to eligible promoters, minimum capital required, criteria for foreign shareholding, business model, desirable corporate structure and governance standards of the applicant group.