Guidelines for new banking licences: Sound credentials, 10-year track-record a must, says RBI

 

By ET Bureau | 4 Jun, 2013, 04.38AM IST

MUMBAI: The Reserve Bank of India on Monday clarified the muchawaited guidelines for new bank licences, allowing corporates and public sector entities with sound credentials and a minimum track record of 10 years to enter the banking business. Corporate houses and public sector entities like the Anil DhirubhaiAmbani Group, Larsen & Toubro, Tatas, Mahindra and Mahindra, Life Insurance Corporation and AdityaBirla Group can enter the banking business. However, it's up to RBI to evaluate if the applicant is fit and proper. The fit and proper criteria, if clarified, are a matter of judgement and indicative criteria for the same cannot be spelt out.


"The kind of disclosures the Reserve Bank is demanding from promoters and promoter groups will only see serious players applying for the licence," said a partner from a consulting firm. "It is a huge challenge for corporates to implement the proposed structure. One name that does not have any baggage and could have an edge over other applicants — Manipal Group with Janalakshmi Financial Services and Mohandas Pai and Religare Enterprise, which already operates as a non-operative financial holding company," he said. "However, having said that, the promoters of Religare EnterprisesBSE 2.64 % may have to face strict scrutiny by RBI due to the various troubles of Ranbaxy and their earlier venture with the US drug regulator. It is clearly left to the judgement of RBI," said the consultant. "Religare has been in the financial service space for more than 10 years. As far as Ranbaxy is concerned, the erstwhile promoters have clarified their position," said Shachindra Nath, Group CEO, Religare Enterprises. "Religare Enterprises is an independent financial services company run by an independent board and have no promoters," said Nath.

Before granting licences, the central bank would also seek a feedback about applicants from other regulators, enforcement and investigative agencies such as the I-T department, CBI and the Enforcement Directorate, as deemed appropriate. This, in itself, will disqualify many applicants as many corporate houses are under cloud. The Hinduja Group is the only corporate house that was granted a banking licence. They have promoted IndusInd BankBSE -0.20 %, a private sector bank.

"They have kept the eligibility criteria very broad based. Players would need to prove their strength with the management quality and business plan," said Monish Shah, senior director at Deloitte in India. "RBI wants to know the names behind the application and there would be fair bit of scrutiny on the shareholder promoters," said Shah. Those seeking to set up a bank would have to submit applications by July 1, 2013. RBI will display names of applicants on its website. RBI will now begin taking applications for bank licences for the first time in a decade. The last time new banks were allowed was in 2002-03, when two licences were issued. In the first wave of privatisation of the banking sector, 10 players were allowed to start operations in the mid-1990s and these included ICICI BankBSE -0.38 %, HDFC BankBSE -0.81 % and IDBI BankBSE -2.06 %, among others.

There are 26 PSU banks and 22 private sector banks. Only 35% of India's adult population has accounts with banks and other financial institutions against a global average of 50%.