Sinha wants RBI to turn back on road to new bank licences

Written by Arun S | New Delhi | Updated: Sep 30 2013, 05:17am hrs
Senior BJP leader and chairman of the parliamentary standing committee on finance Yashwant Sinha wants the RBI to immediately stop screening applicants for new bank licences and roll back the process because the multi-party House panel has unanimously rejected a provision allowing the entry of corporates in the crucial sector.

The panels opposition to the process comes even as the RBI on September 28 said that it is considering corporate candidates for the new bank licences for many reasons, including the need to promote financial inclusion.

Sinha told FE: (Bank) Licences have not been issued so far; only applications have been submitted. Therefore, the process can be rolled back and it cannot be legally challenged by anyone. We have called upon the RBI and the government to reconsider the decision (to allow corporates in banking). If the RBI and the government have another view, let us agree to disagree."

He added that if the government can look at rolling back the ordinance against disqualification of convicted lawmakers from the stage where it has gone to the President, then the process of allowing corporates into the banking sector can also be rolled back.

This is because the new bank licence process is at an early stage, he said, adding that the panel headed by him, which comprises members from parties across the political spectrum, including from the ruling Congress, wants a rollback.

Sinha stated that the panels report will be submitted to the Lok Sabha on Monday, indicating that the matter will be taken up for discussion in Parliament in the next session.

B Mahapatra, executive director, RBI, had said recently in Pune: "Financial inclusion being the overall objective of the current bank licencing policy, it was considered that industrial houses with their deep pockets could fill the gap as financial inclusion is a capital and technology-intensive project.

Among the leading corporates who have turned in their application include the Tata group, Bajaj Finserv belonging to the Rahul Bajaj group, Reliance Capital controlled by Anil Ambani, Aditya Birla Nuvo Ltd of the Aditya Birla group, and L&T Finance of Larsen & Toubro, besides Indiabulls Housing and Shriram Finance.

The prominent business houses who reportedly have not applied include the Mahindra & Mahindra group and Reliance Industries.

"We (the panel) examined many, including the RBI, and concluded that corporates should not be allowed in the banking sector. To expect that the new banks backed by corporates will necessarily devote themselves to financial inclusion is utterly misplaced," Sinha said.

The panel has also pointed out that one of the reasons that led to bank nationalisation in 1969 was the undue favour shown by managements of private banks to their own promoters from the corporate world.

Sinha recalled that in 2001 also, when he was the finance minister, the then NDA government clearly stated that business houses should not be given banking licences.

"Even after the experience of global financial meltdown, to say that corporate houses should be allowed in the banking sector defies logic. It is also not correct to hold the view that without the deep-pocketed corporates, the government and the RBI will be helpless in their efforts to advance financial inclusion," he said.

In his Pune speech, Mahapatra said the new policy on issued by the RBI banking licence addresses concerns on the issue of permitting industrial and business houses to own banks through adequate checks and balances in the new guidelines. These include the fit and proper criteria for the promoters.

"The promoters/promoter group should be financially sound. They should have sound credentials and integrity and also a successful track record for at least 10 years of running business," he added.

Besides the promoters/promoter groups business model and business culture should not be misaligned with the banking model and their business should not potentially put the bank and the banking system at risk on account of group activities such as those which are speculative in nature or subject to high asset price volatility, he said.