RBI invites comments on regulations for new banking licence

The RBI today said it is mulling granting banking licence to a "limited number" of new private players and invited public comments on the kind of regulations it should have for this space, being eyed by players like ADAG, Aditya Birla Group and India Bulls.

The much-awaited discussion paper on 'entry of new banks in private sector' sought comments on issues like allowing industrial, business houses to promote a bank and whether NBFCs be permitted to convert into a bank.

However, paper suggested that in case NBFCs are allowed to enter into a banking space, they or their subsidiaries should not be engaged in the realty sector.

The paper, floated after Finance Minister Pranab Mukherjee mentioned in the Budget about new banking licenses, asked opinions by September 30 on minimum capital requirements for new banks, promoters contribution, caps on promoters shareholding, other shareholders and lowering of cap on foreign shareholding to below 50 per cent.

Pointing out that more players would lead to efficient banking services at reduced cost to the poor, the paper said, "The Reserve Bank is considering providing licenses to a limited number of new banks. A larger number of banks would foster greater competition, thereby reduce costs and improve the quality of service."

The central bank listed pros and cons of keeping minimum capital requirement at low level of over Rs 300 crore, middle level of Rs 500 crore and high level of Rs 1,000 crore.

While low level of minimum capital may lead to optimum level of utilisation of resources from the beginning, it may result in non-serious players coming into the field, the RBI said.

On the other hand, high level of minimum capital requirement would invite only serious players into the banking space, it could deviate bankers from financial inclusion as they would focus more on profit.

Commenting on the discussion paper, KPMG Financial Services Tax Leader Punit Shah said,"We think an amount of Rs 1,000 crore could be used as threshold. Another option would be to have a starting thershold of Rs 500 crore which is then gradually increased to Rs 2,000 crore over two-three years."

Seeking comments on industrial houses as a promoter of bank, RBI said while most countries do not have a ban on non-financial firms from owning a bank, the regulations limit the percentage of voting rights and controlling positions that any shareholder could obtain.