RBI grants preliminary bank licenses to IDFC, Bandhan Financial

By Suvashree Dey Choudhury and Swati Pandey

MUMBAI (Reuters) - The Reserve Bank of India (RBI) on Wednesday said it has given in-principle approval to IDFC Ltd and Bandhan Financial Services to set up new banks in a country where about half of the households do not have access to formal banking services.

The RBI said the approval would be valid for 18 months during which the two financial firms will have to comply with the requirements laid down by the central bank, according to a statement.

The central bank said it will also consider the application of India Post, but under a separate process to be carried out in consultation with the government.

The central bank said 25 applicants had been considered, and judged under various criteria including analysis of their financial statements, track record of running their business over the past 10 years and potential to run a bank.

"RBI's approach in this round of bank licences could well be categorised as conservative," the central bank said in the statement.

"At a time when there is public concern about governance, and when it comes to licences for entities that are intimately trusted by the Indian public, this may well be the most appropriate stance."

IDFC, a Mumbai-based non-bank financial company, specialises in infrastructure lending, while Bandhan Financial is a microfinance organisation based in Kolkata.

The RBI last year allowed corporate houses to form banks as part of an effort to expand access to financial services in the country. About half of Indian households in the country of 1.2 billion are outside the banking system and branch penetration is low.

As many as 27 companies had applied, including billionaire Anil Ambani's Reliance Capital . Tata Capital, part of the Tata conglomerate, later withdrew its application citing operational difficulties in setting up a bank.

No new Indian bank has been formed since Yes Bank in 2004.

Proponents of issuing more licences hope deep-pocketed corporate-backed banks will bring the technology and appetite to operate in under-served markets, but critics have worried about whether companies can strictly separate their banking operations from their main businesses.

The RBI Governor Raghuram Rajan had formed a four-member external panel to scrutinize applications for new banking licences, headed by a former RBI governor Bimal Jalan. It started evaluating the applications from November.

(Additional reporting by Nandita Bose and Himank Sharma; Editing by Rafael Nam)