Sought EC nod as matter of caution: Rajan

Election Commission would take a view on issue of grant of new bank licences by RBI on March 31

Reserve Bank of India (RBI) Governor Raghuram Rajan said on Thursday the central bank has sought the Election Commission (EC)’s nod over the issue of grant of new bank licences as a matter of caution. Rajan was in the Capital to meet Finance Minister P Chidambaram ahead of the monetary policy announcement on April 1.

“I think (it) is to make sure that any such announcements are not tinged by uncertainty. That’s why it is important to ask the Election Commission whether this meets with the code of conduct. Think of it as caution, you might call the caution excessive but it’s important to follow process," he told reporters here.

Also, Rajan met Finance Minister P Chidambaram here ahead of the monetary policy announcement on April 1.

According to Election Commissioner H S Brahma, the EC would take a view on the issue of grant of new bank licences by RBI on March 31.

When asked whether new bank licences will be issued on March 31, Rajan said, “I don't know.”

On the concerns of the EC with regard to grant of licence, Brahma had said, on Wednesday, “Our concern is simple, if you have done your job properly... If they are very confident about their rules and regulations, why should they refer to us? Point is that, if they have done their job thoroughly, honestly, diligently, they should not have referred.”

He had further said if everything with regard to new bank licences were decided on 2013, then what prevented RBI from issuing them. RBI sought the EC's nod as the model code of conduct came into force with the announcement of general elections on March 5.

Final guidelines for setting up new private banks were issued in February 2013. The last day for applications was July 1.

The RBI received 27 applications and subsequently, Tata Sons Ltd and Value Industries Ltd withdrew.

Public sector units India Post and IFCI and private sector Anil Ambani group and Aditya Birla group were among the 25 players in the fray for bank licences. Bajaj Finance, Muthoot Finance, Religare Enterprises and Shriram Capital have also applied.

In the past 20 years, the RBI has licensed 12 banks in the private sector in two phases. Ten banks were licensed on the basis of guidelines issued in January 1993.

Kotak Mahindra Bank and Yes Bank were the last two entities to get banking licences from the RBI in 2003-04.