FM asks RBI to start issuing new licences

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Finance Minister P Chidambaram made it clear to RBI that it has the powers to issue new bank licences.  (Reuters) Finance Minister P Chidambaram made it clear to RBI that it has the powers to issue new bank licences. (Reuters)
SummaryP Chidambaram made it clear to RBI that it has the powers to issue new bank licences.

bank, to authorise acquisition of shares beyond 5 per cent in a bank holding company, and an exit policy in case of irregularities.

On November 15, Chidambaram said he had asked RBI to finalise the guidelines for new licences and start accepting applications for the same pending passage of the Banking Regulations Bill.

The last time the RBI allowed new private banks was in 2002 prior to which it allowed new players in 1991-92.

The RBI issued the final guidelines for new banks in August 2011, including those floated by corporates, but is waiting for the necessary legal powers before it proceeds further. The bank licences were initially slated to be issued way bank in 2008-09.

However, the Finance Ministry wants RBI to speed up the process, under provisions of the Companies Act, without waiting for amendments to the existing banking laws, in its effort to create a positive sentiment among investors and the industry.

The amendments to the Banking Regulations Act will invest RBI with supervisory powers over private companies that would enter the banking sector.

On October 30, at the credit policy announcement also, Subbarao had ruled out any short cuts when it came to issuing new bank licences.

"We believed, we believe and we still believe that we need these powers to move forward," he had said, adding "an amendment to the Act is pending for giving us the necessary powers, authority and dispensation to deal with corporates entering the banking sector."

As per the RBI's draft norms released in August 2011, private sector entities or groups owned and controlled by domestic promoters, with diversified ownership, sound credentials and integrity, and having successful track record of at least 10 years, would be eligible to promote banks.

The norms have pegged the minimum capital required for promoting a bank at Rs 500 crore and restricted foreign shareholding at 49 per cent for the first five years of operation.

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