RBI moves step closer to issuing pvt bank licences

Written by Sunny Verma | New Delhi | Updated: Mar 30 2012, 08:24am hrs
The Reserve Bank of India (RBI) has moved a step closer to issuing fresh private sector bank licences, with the government moving to seek the Cabinets approval for amendments in the Banking Regulation Act (BRA). The amendments in the BRA would empower the RBI to supersede the boards of banks and suspend licences in case of any wrongdoings.

The Cabinet is expected to approve the amendments as early as this week. The Cabinet will take up the amendments in BRA this week. Subsequently, we will table it in the Budget session, may be, post recess, a senior government official said. The government believes the parliamentary approval can come soon and, thereafter, the RBI would be able unveil final norms for issuing bank licences, he said.

The finance ministry is keen that applications for new licences are invited by the later half of the next fiscal, the sources said. A number of private players are keenly awaiting the norms. Finance minister Pranab Mukherjee said in his Budget speech that the government will bring amendments to the BRA in the Budget session itself.

The RBI has made the issue of new bank licences contingent upon amendments in the BRA. This will empower it to supercede bank boards in the event of any untoward incident. The amendments will also empower the RBI to regulate financial conglomerates. Further, the central bank will get powers to seek information on subsidiaries of the banks. The RBI currently does not have powers to monitor or assess the risks of asset management and insurance arms of banks.

The government is expected to issue about half-a-dozen fresh banking licences. These will be granted at one go to ensure same entry time for the players. New players will need to open about a quarter percentage of their total branches in rural areas in order to foster financial inclusion.

A new player would be required to bring in a minimum capital of Rs 500 crore, while foreigners can own up to 49% in the new bank. The RBI released a discussion paper on new bank licences in August 2010, released a summary of the feedback on the paper in December 2010 and unveiled draft norms in August 2011. The central bank will issue final norms after the BRA is amended.