Tainted players unlikely to get banking licences

The banking regulator is unlikely to grant new banking licences to corporates who have been defaulters or have been tainted in the past, according to two people in the know.

The Reserve Bank of India (RBI) is expected to come out with draft guidelines for new banking licences soon, though a final date has not yet been issued.

“RBI feels corporates who have been defaulters with their loans to banks should not be granted banking licence,” said a representative of a Mumbai-based financial services company who did not wish to be named. “But who is not tainted these days? The biggest of the corporates have been tainted by the recent corruption issues. I think the RBI does not want to give out too many licences,” said the official.

Financial inclusion is expected to be the top priority while granting new licences. But, going by sources, the RBI is going to be cautious even while granting new licences for financial inclusion.

“This is because they do not want the corporates to repeat the microfinance institutions story,” said a source, adding that the central bank apprehends corporates will start disbursing loans in villages after securing the banking licences and then resort to loan recovery through unscrupulous means. “Corporates go through business cycles. In good times, they will freely disburse loans. In bad times, they will resort to tough recovery means.”

The new banking licence norms have been in the headlines ever since the finance minister in his budget speech last year said the central government is willing to give licences to corporates and other players to open new banks. However, the RBI’s response has been less than encouraging.

The central bank had put up a discussion paper on its website in August.

In December, it put out a gist of the comments received over the discussion paper and stated that “RBI has been advised by others to exercise caution about the entry of industrial houses into banking and not to allow industrial houses an unrestricted banking licence.”

The RBI was then supposed to come out with the draft guidelines.

R Gopalan, secretary, economic affairs, Ministry of Finance, said last week that the draft guidelines will soon be out.

However, sources said they will take time as there are differences between the RBI and the finance ministry on the issue of granting banking licences to corporates.