New Bank Licence Guidelines Very Soon: RBI Deputy Guv
Reserve Bank is likely to "very soon" come out with the final guidelines on new bank licences as its consultation with the Finance Ministry on the issue is nearing an end, Deputy Governor Anand Sinha said today.

He also said the RBI and the Finance Ministry will arrive at a common position on issues like allowing brokerage firms and realtors into the banking space.

"We will come to a mutual position (on issues concerning brokerages, real estate firms to be given banking licences) and then issue the final guidelines," Sinha told reporters on the sidelines of an event here.

Asked about the timeline for the final guidelines, Sinha, in-charge of the banking operations and development department at the RBI, said, "very soon" as "consultations with the Ministry are nearing an end".

In the draft guidelines issued in August 2011, the Central bank had said firms with an exposure of 10 per cent or more to real estate and brokerage businesses by revenue or assets will not be eligible for applying for banking licences.

Finance Minister P Chidambaram had told investors in London late last month that he expected the regulator to issue final guidelines within two weeks.

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 in the mid-1990s and these included ICICI Bank, HDFC Bank and IDBI Bank, among others.

The third round of private licencing had been pending since 2009-10 when the then Finance Minister had announced it. However, differences between the RBI and the North Block over entry norms have delayed the process.

In the winter session of Parliament, the Government got the Banking Regulation Act amended to facilitate the process and give over-riding powers to RBI to dismiss the board of erring banks.

The Deputy Governor said there is concern of self-dealing (between bank and its promoter Group companies) on which the consultation is going on with the North Block.

"The basic issue is the possibility of self-dealing. Nevertheless, in the draft guidelines we have said we will go ahead," Sinha said.

The Deputy Governor said the process of issuing new banking licences will take a few months.

"There is a process...Once the final guidelines are issued, we will give them (entities seeking licence) some time to apply. Then, there is internal scrutiny...Then external scrutiny. All this will certainly take a few months."

On the recent credit card frauds, Sinha said the Central bank is looking into them.

"We are certainly looking at them. Because, what has happened, what is reported is of high magnitude. So, obviously, we have to be alert," he said, adding banks have to investigate and take corrective action in such cases.

Earlier this week, there had been reports in a section of the media alleging that an international gang had robbed Indian credit card users of Rs 30 crore in the past two months alone.

Referring to the recent draft guidelines on provisioning norms for restructured loans, Sinha said RBI will take into account all feedbacks before finalising the norms.

"Banks' concern is on profitability. Before we finalise, we will take into account all feedbacks," Sinha said, adding this will be done in a calibrated manner.

The RBI has said banks have to make provisions to cover 5 per cent of their restructured loans starting April instead of the current 2.75 per cent.
Emerging story. Watch this space for updates as more details come in
FILED IN: Banking | RBI
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