Auctioning of bank licences will make services costlier: Subbarao

Written by feBureau | New Delhi | Updated: Apr 10 2013, 05:49am hrs
RBI doesn't favour auctioning of the new bank licences, like the 2G and 3G telecom licences. Deposing before the Parliamentary Standing Committee on Finance, RBI governor D Subbarao said auctioning would result in an increase in cost of services and ultimately hamper financial inclusion. Auctioning, the governor noted, is not a preferred way to issue bank licences globally.

According to sources, Subbarao, however,defended the decision to allow corporates including realty firms and broking houses to apply for banking licences, saying there are enough safeguards in the norms to ensure there will not be any frauds or systemic issues. He said the number of new licences to be issued has not been finalised.

FE had reported in March that the new bank licence guidelines issued in February by the RBI have come under the scrutiny of the parliamentary panel led by BJP leader and former finance minister Yashwant Sinha, adding that the panel has sent queries to the government and the RBI on the norms.

Many, including Left parties, had opposed the decision to allow corporate houses into the banking business, arguing that it could result in siphoning of the hard-earned deposits of the common man.

Members of Parliamentary panel also expressed concerns over the recent reports of some private banks allegedly offering to launder money, and wanted stringent action against those banks.

Though new bank licence guidelines wanted an external panel to look into the applicants for these licences, the panel members objected to this citing conflict of interests and wanted RBI to look into these applications.

Some members also said only those companies which have been found guilty of wrongdoings should be prevented from obtaining licence, and not those under investigation by any probe agency (such as CBI) as mentioned in the new banking licence draft guidelines.

Apart from the checks and balances in the guidelines, the panel had also sought to know from RBI whether allowing corporates into the banking fold would help the financial inclusion process, especially in bringing the banking services in rural areas. It also wanted to find out from the central bank the impact of permitting corporates into the banking sector on the nationalised banks.

In its guidelines, RBI had incorporated several safeguards to ensure that there is a firewall between the operations of the new banks and the businesses of their respective promoters.