Norms on niche bank licences this year: RBI

This is first time banking regulator considering such an exercise, a departure from present practice granting only universal bank licences

The Reserve Bank of India (RBI) is expected to announce guidelines on differentiated bank licences, as well as on ‘on-tap’ licences by the end of this year, R Gandhi, the central bank’s deputy governor, has said.

RBI has been considering  issuing niche bank licences; it had floated a discussion paper in this regard last year. This is a departure from the current practice of granting universal bank licences alone.

After issuing two in-principle bank licences last month, RBI Governor Raghuram Rajan had said it was possible some of the applicants for licences were more suited to operate differentiated banks, not universal banks.

In April, RBI issued in-principle licences to infrastructure financier IDFC and micro lender Bandhan. These entities will have to start operations within 18 months from the time they secured the licences.

The regulator will make bank licences available on an ‘on-tap’ basis; this, too, is a departure from the current ‘window’ system. In the past, RBI had issued licences to private companies in tranches, following the issuance of norms in this regard 1991 and 2001; for the licences issued last month, the final norms were issued last year.

Gandhi declined to specify when licences would be given to other applicants. He clarified if an entity failed to secure a bank licence this time, it wouldn’t have any bearing on its interest to acquire a large stake in an existing bank.

There were media reports L&T Finance, which had failed to secure a licence in the first round, was eyeing a stake in YES Bank.

“They might be rejected a bank licence, but is they come as a shareholder, we will examine that. It won’t be a bar just because it has been rejected a (banking) licence,” he told reporters without naming L&T Finance. “We will look at the fit and proper (criteria); normal due diligence will be applied and based on that, decisions will be taken. It is not that we are pro or against a particular group or a company.”

On the possibility of India Post securing a banking licence, Gandhi said the government was in talks with RBI on the matter.

On concern on the asset quality of banks, Gandhi said he hoped the high incidence of loans turning bad would decline due to steps being taken by banks. “The hope is the market will definitely improve; also, the asset quality will be good because of the various efforts the banks are continuously taking. These should pay off to bring the asset quality back to normal,” he said.

On the need for banks to raise more capital in the run-up to migrating to the Basel-III framework, Gandhi said there was a need for banks to look at more innovative ways to raise capital.