Contenders unsure, new bank licence norms delayed

Draft guidelines on new banking licences have been delayed.
According to sources familiar with the development, the main reason for this is that many of the comments received by the Reserve Bank of India (RBI) from various stakeholders on its discussion paper on the issue were contradictory in nature.

As a result, the RBI could not come out with the draft guidelines by end-January — as it had said.

According to a source in Indian Banks’ Association (IBA), the draft guidelines are expected to come out by the end of this financial year now and after that many players who are eyeing a licence might back out because the government and the RBI are expected to come up with some stiff terms on financial inclusion.

“The government does not want new players to enter the banking industry and crowd the metros and big cities. Financial inclusion will get top priority in the draft guidelines,” the source said.

In its second quarter review of the monetary policy on November 2, the RBI had said that the draft guidelines shall be put up in the public domain by January-end for public comments.

In December, the RBI had released a gist of comments on the discussion paper on the entry of new banks in the private sector.
It is now almost a year since finance minister Pranab Mukherjee said in his Union Budget speech on February 26, 2010 that in order to extend geographic coverage by banks, the RBI will consider giving some additional banking licences to private companies and non-banking finance companies.

Some experts support the delay in granting of licences.
“If the RBI were to really very clearly articulate what is the responsibility rather than the opportunity, it would be more interesting. Then what will happen is that only those who have the long-term commitment to the economy will come forward. So it is better that the draft guidelines come out that way,” said Ashvin Parekh, partner and national leader, financial services, Ernst & Young.

In the last one year, the list of players eyeing a banking licence has increased. It includes large corporates as well as medium and small players.

Among the large corporates, the Anil Ambani group and Aditya Birla Group had shown interest. The others include names like Bajaj Finserv, Mahindra & Mahindra Financial Services, IFCI, Exim Bank, Sidbi, Shriram Group, Srei Group, Religare, LIC Housing Finance and Indiabulls.