5 September 2013
MUMBAI: Bimal Jalan, a former RBI governor, will head an external committee that will screen applications for new banking licence. The announcement was part of a blizzard of steps announced by Raghuram Rajan on Wednesday evening shortly after taking charge as RBI governor. New banking licences would be issued by the end of January 2014, while the central bank is also contemplating 'on-tap' issue of licences, Rajan said.
The central bank has received 26 applications from those seeking to set up new banks. "We will not stop with these licences. The RBI has put an excellent document on its website exploring the possibility of differentiated licences for small banks and wholesale banks, the possibility of continuous or on-tap licensing, and the possibility of converting large urban co-operative banks into commercial banks," said Rajan.
"I hope to announce the licences within, or soon after, the term of DG (deputy governor) Anand Sinha, who has been shepherding the process. His term expires in January 2014," he said. The aspirants include Tata Sons, IDFC, India Post, Suryamani Financing, the Aditya Birla Group and Reliance Capital of Anil Ambani. The external committee, the one to be headed by Jalan, will make recommendations to the RBI governor and the deputy governor in charge of the process. They will then put forward a final short-list to a committee of the RBI Central Board.
To ensure competition in the banking system and financial inclusion, the governor also proposed to allow wellrun domestic scheduled commercial banks to set up bank branches without seeking RBI approval, effectively deregulating branch licensing. However, banks would have to ensure that 25% of their bank branches are in unbanked rural centres. "We will restrain improperly managed banks from expanding until they convince supervisors of their stability. But branching will be free for all scheduled domestic commercial banks except the poorly managed," said Rajan.
Currently, banks are permitted to open branches without prior RBI approval in smaller cities. "My own sense is that the current approval system is not tedious. We would have to wait for the finer details, and how does the central bank define poorly managed banks would be crucial," said the MD & CEO of a private sector bank. To increase participation of foreign banks in the country, the governor is also encouraging foreign banks to subsidiarise (ie, operate as a wholly owned subsidiary) in the country.
"We would like them to participate more in our growth, but, in exchange, we would like more regulatory and supervisory control over local operations so that we are not blindsided by international developments," said Rajan. "The RBI will encourage qualifying foreign banks to move to a wholly owned subsidiary structure, where they will enjoy near national treatment on a reciprocal basis. We are in the process of sorting out a few remaining issues so this move can be made," he said.
Published by: The Economic Times