The Reserve Bank of India (RBI) took another step towards handing out new bank licenses on Thursday, but refused to disclose its own views on whether industrial houses would also be allowed to apply for the licenses.
The apex bank put up the gist of the extensive discussions it has had with industry bodies, trade, NBFCs and scholars on the licenses. These are supposed to form the basis of its decision to give a fresh set of licenses since 2004.
The RBI paper says federations/associations of industry as well as non banking finance companies (NBFC) and micro finance institutions (MFI) sector are generally in favour of permitting industrial/business houses to promote new banks while banks are not in favour of the proposal due to the unsavory past experience in India and abroad.
The banks have argued that large capital buffer that would be available to the banks sponsored by industrial/business houses would create an uneven playing field with the existing banks.
RBI has been advised by others to exercise caution about the entry of industrial houses into banking and not to allow industrial houses an unrestricted banking licence, said RBI which has made public the gist of comments on the ?Discussion Paper on Entry of New Banks in the Private Sector.?? RBI had earlier interacted extensively with associations of stakeholders from the industry, banks, NBFCs and MFIs and some consultants including CII, Assocham, Ficci, IBA, RRBs Officers? Federation, FIDC, MFIN, Ernst & Young, and Pricewaterhouse Coopers on the issue of giving banking licenses to the private sector.
A public sector bank chief confirmed, ?Yes, we are totally against it. Only industrial houses? interest will be served by this way as they will not be able to go to the rural areas like us. They may be allowed to go for opening of shops, but not the banks.?
Those who had opposed giving licenses to the industrial houses argued that experience of other counties show that combining banking and commerce implies there would be a lot of connected lending. The ownership structure of large industrial groups may open opportunities for regulatory arbitrage. In cases where the apex entity of a financial conglomerate is an unregulated entity, there could be gaps in risk assessment and supervision.
As there is no dearth of capital, existing players also could raise the required capital and, as such, no additional benefit accrues by granting bank licences to industrial houses.
