Wednesday, January 30, 2013

New bank licence norms could be delayed

With differences between the finance ministry and the Reserve Bank of India (RBI) emerging over who can enter the banking sector, release of the new guidelines on banking licence norms could be delayed.

The finance ministry has asked RBI to consider broking firms and real estate developers while issuing new licences. This is despite the banking regulator ruling out such entities in the draft norms released in 2011.

RBI Governor D Subbarao today said the central bank was waiting for the government’s response.
“New bank licence guidelines are in the final stage. We have consulted the government and they have made certain points, to which we have responded. I do not know how many iterations it might go through, but now we are waiting for the government’s response to that,” said Subbarao.

He, however, added both the government and RBI would want to announce this as soon as possible.

Expectations were high after the Banking Laws (Amendment) Bill was passed by Parliament in December, vesting more power to the banking regulator. Subbarao, however, declined to comment on whether industrial houses will be allowed to do banking.

“You will have to wait till the final guidelines come out. We have put out draft guidelines and received feedback, which we put out in the public domain. Now, we are in the final lap and we will take a view shortly,” he said.

The recent comments from various quarters such as International Monetary Fund (IMF) that industrial houses should not be allowed in banking has made RBI re-think the entire issue.

“International experience has supported the prudent policy position of disallowing industrial houses from promoting and owning banks,” an IMF report titled ‘Financial System Stability Assessment Of India’ had pointed out.

Recently, Nobel laureate Joseph Stiglitz had also advised against giving licences to industrial houses for setting up new banks. C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, had suggested preference be given to the non-corporate sector in issuing these.

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