Private players seeking banking licences under the government?s plan to expand the coverage of banking facilities might have to pitch in with a paid-up capital of Rs 1,000 crore. The large capital base, as opposed to the current norm of Rs 300 crore, is being mulled by the government and RBI as the duo don?t want a repeat of the Global Trust Bank and Centurion Bank fiascos, which occurred earlier in the decade owing to smaller equity sizes. The finance ministry is expected to hold a discussion with RBI soon.
Official sources told FE that what seemed most feasible at this juncture is to allow a clutch of the large non-banking finance companies (NBFCs) to get themselves converted into banks. These NBFCs will also have the option to take over some of the older private sector banks with thin capital bases.
The RBI is expected to soon come out with a detailed criteria for issue of additional banking licences to private players, in line with the announcement made by finance minister Pranab Mukherjee in Budget 2010-11. One worry that the potential applicants have is whether the central bank would restrict the new licences to areas like rural and agricultural banking, or if the new banks would have the freedom to function as full-fledged commercial banks and accept deposits.
Analysts point out that the Rs 1,000-crore equity capital requirement would ensure that only serious players queue up for new bank licences. Large corporate houses with financial services arms would find it easier to meet the central bank?s eligibility criteria, rather than most of the pure-play NBFCs, they say. But when it comes to RBI?s scrutiny, the promoter?s credentials would be as important as its capital base. RBI could gauge the track records of the applicants on corporate governance standards and financial inclusion, besides evaluating their existing portfolios.
?What would matter is the promoter?s credentials in protecting the deposit- holders? interests,? said Ernst & Young?s executive director (financial services) Ashwin Parekh.
Private entities who have the ability to win the confidence of depositors and a large rural reach could be the ones to get new banking licences, said Abizer Diwanji, head (financial services), KPMG.