On tap licences first for niche banks, then for universal banks: Rajan

The Reserve Bank of India (RBI) may come out with differentiated bank licenses for which the framework will be ready in the next few months, following which on-tap licenses window would also be opened up. Announcing the bi-monthly RBI governor Raghuram Rajan said that the point is that RBI shouldn't be giving licenses every 10 years.

Rajan explained that there is a scope for having people with partial licenses, for example like payments or lending banks so that they are enabled to come into the system.

"This will allow people to allow banking capabilities with relatively small size corporations, which will allow them to apply for full banking licenses down the line. So to facilitate and expand entry, we need to look at both on-tap licenses, which is examined regularly, applicants every few years and have differentiated licenses," Rajan added.

Talking about the timeline for this process, the governor said that it takes sometime for the applications to be vetted. "What we have learnt this time is how to do the vetting carefully and that will be part of the process going forward. I can't give you a date, but can say we hope to open the window quite soon . It may be that we open the window for differentiated licenses and then move to open the on-tap for universal licenses," said Rajan further.

In 2013, RBI had already come out with a discussion paper on the banking sector, on which the regulator had invited comments from stakeholders. This document had explored the possibility of differentiated licences for small banks and wholesale banks and possibility of continuous on-tap licensing.

Kotak Mahindra Bank and YES Bank were the last two entities to get banking licences from RBI in 2003 and 2004 respectively.

Former finance minister and now President Pranab Mukherjee announced in his Budget speech for 2010-11 that companies and business houses will be allowed to set up new banks. In August 2010, RBI released a discussion paper on entry of new banks in the private sector. Finally, in February 2013, the central bank released guidelines for licensing of new banks.