New Bank Licences: Rajan optimistic on Jan date

Admits foreign banks not keen on subsidiary format

Though the Reserve Bank of India (RBI) is yet to complete even the initial screening of bank licence applicants, governor Raghuram Rajan is still hopeful of meeting his January deadline for awarding these.

"My hope is that by early next year, we will be able to announce the licences. I think we are on target for that, maybe a few weeks this way or that way," Rajan said at a press meet on Thursday.

The banking regulator, set to allow new entrants after a little more than a decade, has set up an advisory committee under the chairmanship of Bimal Jalan, an ex-RBI head, for its recommendation. RBI is currently engaged in 'prima facie' screening of the 25 applications and is yet to send its own remarks to the Jalan committee.

On Wednesday, Jalan had said his panel would give its report on the applications three months after RBI completed its scrutiny. While the Jalan committee will recommend the names, the final decision would be RBI's.

The other members of the committee are Usha Thorat, a former RBI deputy governor; C B Bhave, a former head of the Securities and Exchange Board of India, and Nachiket M Mor, RBI board member.

Rajan declined to say how many licences would be given. "That will be based on what the committee recommends and what RBI decides. We don't have a fixed number in mind," he said.

Separately, Rajan admitted most foreign banks in the country were not enthusiastic in opting for subsidiarisation. "It is interesting - one section of the population thinks we have given away too much and are protesting against that. But foreign banks themselves don't seem interested. Both cannot be right," Rajan said.

He added while foreign banks were not too excited at this opportunity to get more branch licences, they would be able to preserve capital better by opting for the subsidiary mode of presence.

He also said foreign banks with more than 20 branches here already needed to meet a higher priority sector lending target and, hence, lenders choosing to create subsidiaries should not view it as an additional cost imposed on them.

"One of the most important benefits is that they can expand a little more, though they don't seem very interested in that...there may be some benefits in terms of preservation of capital if they go towards subsidiarisation. These might be the reasons for them to migrate," Rajan said.

Anand Sinha, deputy governor of RBI, said the central bank did not have any timeframe for foreign lenders to convert their branches into subsidiaries. "We certainly hope over a period of time they will see that, on balance, there is advantage in subsidiarisation," Sinha said.