After Election Commission's nod, Raghuram Rajan's RBI clears new bank licences for IDFC, Bandhan Financial

Apr 02 2014, 22:43 IST
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Raghuram Rajan received 27 applications in July 2013, after which Tata Sons and Videocon Group withdrew. Reuters Raghuram Rajan received 27 applications in July 2013, after which Tata Sons and Videocon Group withdrew. Reuters
SummaryRaghuram Rajan's RBI gave IDFC, and Bandhan Financial 18 months to comply with requirements.

IDFC Ltd and Bandhan Financial Services Pvt Ltd today won banking licences, with the Raghuram Rajan's RBI approving permits for only two of the 25 applicants.

A day after the Election Commission permitted it to go ahead with the issue of new banking licences, the Reserve Bank of India gave in-principle approval to infrastructure finance company IDFC and Kolkata-based microfinance firm Bandhan Financial to comply with the requirements of a full-fledged bank in 18 months.

Read: Governor Raghuram Rajan's RBI monetary policy review statement

Bandhan Financial first microfinance institution to get banking licence

With regard to the application of the Department of Posts, the RBI accepted the recommendation of the high-level screening committee to take further action in consultation with the government.

The RBI originally received 27 applications in July 2013, after which Tata Sons and Videocon Group withdrew, leaving 25 contenders in the fray.

Read: Raghuram Rajan leaves repo rate unchanged in RBI monetary policy review

Besides India Post, the other applicants included state-run IFCI and private sector Anil Ambani group and Aditya Birla group, Bajaj Finance, Muthoot Finance Ltd, Religare Enterprises and Shriram Capital.

"It will pave way for more entities to come forward and spread financial inclusion. It augurs well for the economy and banking sector," Financial Services Secretary G S Sandhu said.

At present, there are 27 public sector banks and 22 private sector banks in the country.

The RBI has issued bank licences after a gap of a decade. It last awarded licences to Kotak Mahindra Bank Ltd and Yes Bank Ltd in 2003-04.

While permitting the two applicants, the RBI said it "believes that some of those entities who did not qualify in this round for a full-fledged banking licence could well apply in future rounds or could apply for differentiated licences under the proposed framework."

The central bank said it intends to use the learning from this licensing exercise to "revise the guidelines appropriately" and move to give licences more regularly, that is, virtually "on tap." It will also frame categories of differentiated bank licences and allowing a wider pool of entrants into banking.

The RBI said IDFC and Bandhan were recommended as suitable for grant of "in-principle" approval by the High-Level Advisory Committee (HLAC) headed by former Governor Bimal Jalan.

The HLAC had

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