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Wednesday 2 April 2014

RBI to give new bank licences within the next 10-15 days after Election Commission's nod

The Reserve Bank of India is likely to hand out new banking licences within the next 10-15 days after the Election Commission gave its go ahead for the plan despite elections kicking off in a few days. That will set the stage for some such as India Post Bank, L&T Finance Holdings, Infrastructure Development Finance Co and Janalaxmi Financial Services to get the bank licence and unleash competition. There are 25 applicants for the licence, including Reliance CapitalAditya Birla Nuvo, and Indiabulls Group

"One can expect in the next 10 to 15 days," said a spokesperson from the Reserve Bank of India. After weeks of debate, the Election Commission has given the go ahead. "The commission is of the view that the Reserve Bank of India may take necessary action as deemed appropriate by the Bank as permissible under provisions of the RBI Act, 1934 Banking Reguration Act, 1949, and or any other relevant law(s)," the EC said . 

RBI will be granting new licences after more than a decade since it handed out licences to YES Bank in 2003 and Kotak Mahindra to convert itself into a bank from a non-banking finance company. The central bank has imposed strict capital requirements such as Rs 500 crore capital and put a lot of restrictions on how other group activities could be conducted. "We are on a path where the banking space is set to get lot more competitive. 

Cleary, this may result in pressure on margins and pricing which would benefit customers," said Sunil Kaushal, regional CEO for India and South Asia. This may also be the final one where banking licences became such a tough issue as the Governor Raghuram Rajan plans to issue licences on tap and also for differentiated banking. 

"We should not be giving licences every 10 years," Rajan told reporters on Tuesday. "So I think that there is scope for having people with partial licences for payments, or only for lending to come into the system. 

This will allow people to develop banking capabilities with relatively small size of operations, which will then allow them to apply for full banking licences down the line," he said Rajan also defended his decision to consult the EC even though the finance minister P Chidambaram had opined that RBI could have gone ahead by itself even though the code of conduct was in place due to election announcements. 

"The idea to seek permission or just to make sure the election commission was on board was primarily to shield the announcement from controversy so that the new licensees don't get dragged into the political process, which could happen quite easily," said Rajan. "It is perhaps abundant caution," he added.

Source:-The Economic Times