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RBI to issue rules for on-tap licensing in FY15

LiveMint logoLiveMint 08-05-2014 Dinesh Unnikrishnan

Mumbai: The Reserve Bank of India (RBI) will issue guidelines on on-tap bank permits and differentiated bank licensing in 2014-15, Bloomberg reported on Thursday, citing central bank deputy governor R. Gandhi.

Gandhi was speaking at a banking conference in Mumbai.

In April, the central bank had issued in-principle nods to two entities—IDFC Ltd and Bandhan Financial Services Pvt. Ltd, to start banks, from a list of 25 applicants. The new rules will offer opportunities for those companies, which failed to get into the final list of RBI and also to fresh applicants to throw their hat in the ring.

RBI has been maintaining that it wants to make the licensing process continuous instead of the current practice of stop-and-go licensing once in a decade or so. RBI is also planning to give differentiated banking permits to entities or permission to undertake specific banking activities.

The central bank had outlined the broader structure for financial system in a discussion paper on banking structure reforms in August 2013. The report, titled Banking Structure in India—The Way Forward, had said that the stop-and-go licensing policy leads to a “frenzied” response from a large number of competing aspirants and promotes “rent-seeking”.

Besides, there’s a case for converting urban cooperative banks into full-fledged commercial banks so more people can get access to banking even as niche banks and differentiated licensing for specialized banks could be the way forward, RBI said.

List of entities in the race for new banking permits this time included Reliance Capital Ltd, Bajaj Finserv Ltd, Aditya Birla Financial Services Group, L&T Finance Holdings Ltd, LIC Housing Finance Ltd, Muthoot Finance Ltd and India Post.

Gandhi said RBI is in discussions with the government with regard to the matter of giving banking licence to India Post.

In April, RBI had said that a high-level advisory committee had recommended that it consider the case “separately in consultation with the government of India” and it had accepted the suggestion.

The cabinet hasn’t yet approved of India Post’s plan to open a bank.

Gandhi said there is a need for banks to pay attention to risk-governing aspects. Banks may report higher bad debt in 2013-14, Gandhi said. Till December, the total gross non-performing assets of India’s 40 listed banks rose 37% to `2.43 trillion from the previous year.

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