RBI proposes relaxation of bank licence requirements

The draft guidelines include a move to allow large industrial companies to buy up to 10 per cent stakes in new lenders

The Reserve Bank of India (RBI) has issued proposals for the relaxation of requirements for banking licences in the latest effort to boost a sector struggling with $100 billion of stressed debt that is choking the financial system and hitting economic growth.

With only about half of India's population having access to financial services, particularly in rural areas, the RBI is keen to extend the sector's reach and the new proposals aim to encourage investment in new lenders.

The draft guidelines announced on Thursday include a move to allow large industrial companies to buy up to 10 per cent stakes in new lenders.

The central bank also proposed a lowering of the minimum ownership level for companies or people setting up lenders under a financial holding structure to 51 per cent from 100 per cent.

The RBI emphasised, however, that it would remain cautious when granting licences.

"Banking being a highly leveraged business, licences shall be issued on a very selective basis to those who conform to the above requirements, who have an impeccable track record and who are likely to conform to the best international and domestic standards of customer service and efficiency," the RBI said.

The RBI is seeking feedback to its proposals by June 30.