RBI gets poll commission’s yes for new bank licences

Apr 02 2014, 13:57 IST
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SummaryThe Election Commission (EC) has given the green signal for the RBI to announce in-principle approvals for new bank licences.

The Election Commission (EC) has given the green signal for the RBI to announce in-principle approvals for new bank licences. With the model code of conduct coming into force last month, RBI governor Raghuram Rajan, as a matter of “caution”, had sought EC's “guidance” on the matter.

“The commission is of the view that the RBI may take necessary action as deemed appropriate by the Bank (RBI) as permissible under the provisions of the RBI Act, 1934, Banking Regulation Act, 1949, and/or any other relevant law(s),” a letter signed by K Ajaya Kumar, principal secretary, secretariat of the Election Commission of India, said.

According to RBI guidelines, after the ‘in-principle approval’ for bank licences is accorded by the central bank, the actual setting up of a non-operative financial holding company (NOFHC) and the bank, reorganisation of the promoter group entities to bring the regulated financial services entities under the NOFHC, as well as realignment of business among the entities under the NOFHC, have to be completed within 18 months from the date of approval or before commencement of banking business, whichever is earlier.

The norms also specify that after issuing the in-principle approval for setting up of a bank, if any adverse features are noticed regarding the promoters or the companies/entities with which the promoters are associated and the group in which they have interest, the RBI may impose additional conditions and if warranted, it may withdraw the in-principle approval.

Last week, Election Commissioner HS Brahma had said: "Our concern is simple, if the RBI has done its job properly, honestly and diligently, which they must have done, and if they are very confident about their rules and regulations, why should they even refer the matter to us?".

Brahma also questioned what prevented RBI from issuing the bank licences when the guidelines on licences were decided in 2013 itself.

A panel screening applications for new bank licences headed by former RBI governor Bimal Jalan had in February submitted its report to the banking regulator. With Tata Sons, the holding company of Tata group, pulling out of the list, the number of applicants were down from 26 to 25. The list includes corporate groups such as Reliance-ADAG, Larsen & Toubro, Aditya Birla and Bajaj besides public sector entities such as India Post and IFCI.

On March 7, after the RBI central board meeting, the Rajan had said: "It would be best if the process (of

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