Raghuram Rajans 'on-tap' bank licensing likely putting aspirants on wait-&-watch mode

Written by ENS Economic Bureau | Mumbai | Updated: Nov 28 2013, 14:24pm hrs
Raghuram RajanRaghuram Rajan
Reserve Bank of India Governor Raghuram Rajan had promised "on-tap" licensing and a "dramatic remaking of the banking landscape" on different occasions when he spoke about new banking licences.

On the day he took charge on September 4, Rajan said the RBI would give out new bank licences consistent with the highest standards of transparency and diligence.

He assured that the RBI "will not stop with these licences". The RBI has put a document on its website exploring the possibility of differentiated licences for small banks and wholesale banks, the possibility of continuous or "on-tap" licensing, and the possibility of converting large urban co-operative banks into commercial banks, Rajan had said.

"We will pursue these creative ideas of the RBI staff and come up with a detailed road map of the necessary reforms and regulations for freeing entry and making the licensing process more frequent after we get comments from stakeholders," he then announced.

On the process of selecting the applicants, he said, "We are in the process of constituting an external committee. Bimal Jalan, an illustrious former governor, has agreed to chair it, and the committee will be composed of individuals with impeccable reputation. This committee will screen licence applicants after an initial compilation of applications by the RBI staff. I hope to announce the licences within, or soon after, the term of DG Anand Sinha, who has been shepherding the process. His term expires in January 2014."

On October 5, addressing mediapersons in Chhattisgarh, Rajan said the first set of new bank licences are most likely to be given out by January, before deputy governor Anand Sinha retires.

In an interview to an Indian financial daily on October 9, Rajan said, "We will see if they meet the fit and proper criteria, both based on their business behaviour, as well as business capabilities, then look at the model that they are proposing, see the overall fit of that model whether it brings new capabilities, reaches new customers, reaches new markets, bring new technologies, whatever."

"Whether there's something additional or even brings good new competition. Look at all that, form a view, and then decide. I do not think we have any number in mind. It could be zero. It could be 26," he said.

These comments by the RBI Governor might have given the Tata Group reasons to withdraw its application for setting up a bank and instead wait for more time.

A source privy to the group's decision told The Indian Express, "It is good to evaluate other options if they are made available and the RBI governor has suggested so. Maybe those options would have features that suit the group's requirement."

In an interview to The Financial Times on November 18, Rajan said, "We could have wholesale banks, we could have mobile (phone) companies doing some banking activities, within certain constraints. We could have small banks, which we currently don't allow, and we could allow co-operative banks."

"I see over the next few years a dramatic remaking of the banking landscape. Both from the... new banks which are going to come on board and the foreign banks which are going to be allowed to expand more freely. It will be a multiplier in terms of competition," he said in the interview.