RBI may allow 7-8 NEW banks

Most major corporate houses, such as the Tata group, Birla group and Reliance Industries are interested in setting up new banks.

The Reserve Bank of India (RBI) is likely to give banking licences to seven-eight new entities, including aspirants among non-banking financial companies, as well as industrial houses.

The number of new licences to be issued, which would be much higher than what the prospective applicants had estimated, was arrived at after rounds of discussions with the government. In its discussion paper on the matter, released in August 2010, RBI had said a “few” licences would be given, leading the market to believe the number would be three or four.

According to banking industry sources, the government, which is keen on financial inclusion through spreading formal modes of credit to all parts of the country, insisted that more new players be allowed.

The process to allow new banks has come from RBI nearly a decade after two entities were allowed to set up banks in the previous round.

The central bank had released the final norms on new bank licences in the last week of February and set July 1 as the deadline for filing of applications. Most major corporate houses, such as the Tata group, Birla group and Reliance Industries, besides non-banking financial companies like L&T Finance, M&M Financial Services and the Shriram group, are said to be interested in setting up new banks.

RBI is also likely to issue clarifications to the aspirants on the ‘fit and proper’ criteria. In the final norms, RBI had said an entity would be considered fit to set up banks if it has a track record of sound credentials and integrity, and has been financially sound over the past 10 years.

This had raised concern among some aspirants with cases pending with the Central Bureau of Investigation, Enforcement Directorate, Income Tax Department, etc, that they would be disqualified from applying. Some of these aspirants had sought clarification from the regulator, asking if such pending cases would indeed amount to disqualification.

RBI is expected to clarify that such instances would not be a hindrance in applying for banking licences, provided all such cases are disclosed fully.

The central bank is expected to make the clarifications public by the end of the month or early next month. The queries were asked to be sent by April 10 and RBI had said it would clarify without disclosing the identity of the entities seeking those clarifications.