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Given the noise in the media, one would have thought the number of players seeking bank licences was more than 100. However, after the last day of submission of application, only 26 public and private sector companies have applied for it.
The lukewarm response to a very lucrative business could have prompted Finance Minister P Chidambaram to say that there will be no ceiling on the number of entities which can be permitted to operate a bank.
It was earlier expected that RBI will issue only a limited number of licences. Most of the top corporate houses in the country have lined up for the bank licence, and so have some second rung players. However, the mad rush that was expected earlier is clearly missing.
One reason could be the stringent norms put in by the central bank for issuing licence, both in terms of monetary requirement and compliance. Even Chidambaram has said that the only criteria for licence would be clearing the eligibility criteria. If everyone is eligible, all would get a licence.
And it is widely believed that since the RBI gave enough time for the applicants to meet the criteria and submit their proposals, most would have ensured that they meet the eligibility criteria atleast on objective grounds.
That leaves RBI to reject their application only on grounds of subjectivity.
The trickiest element which can be used by RBI to reject an application is the ‘fit and proper criteria’. This requires a promoter to have sound credentials and integrity. This is not easily measurable and is open to debate and cross questioning. Given the track record of some of the companies that applied for licences, from a layman’s point of view, a number of applications will not be able to get past this barrier.
Why haven’t more companies sought bank licences?
A livemint article cites another reason for fewer seekers despite expectations to the contrary.They feel that a bank licence will expose the promoter industrial house to greater RBI scrutiny. As compared to the response of over 100 applications in each of the earlier two instances when RBI gave away bank licences, the current one was a damp squib.
At the end of the day, RBI through its filters and conditions managed to attract only the serious players with an option of denying licence to those who do not ‘seem’ fit to run a bank. In doing so, it has managed to prevent the creation of another Global Trust Bank or a Bank of Rajasthan.
