IDFC, Bandhan make the cut on banking licences
RBI ignores industrial houses, says it will consider India Post's application after consultation with govt
Manojit Saha & Somasroy Chakraborty Business Standard
The decade-long wait is finally over, with the Reserve Bank of India (RBI) on Wednesday deciding to grant fresh banking licences to two entities out of the 25 applicants. But industrial houses will be disappointed as the central bank has chosen to ignore them.
After the Election Commission have its go ahead on Tuesday, RBI’s committee of central board met on Wednesday morning to deliberate on the two names that were placed before it for approval.
The two entities which made the cut are IDFC, a diversified financial services firm with a special focus on infrastructure financing, and Bandhan, the country’s largest micro lender based in Kolkata.
The two entities will get one and a half years to commence operations, failing which their licences could be cancelled by the central bank. The central bank will also consider the application of India Post, but under a separate process to be carried out in consultation with the government.
The RBI statement said some of those entities who did not qualify in this round for a full-fledged banking licence could well apply in future rounds or could apply for differentiated licences under the proposed framework.
“The “in-principle” approval granted will be valid for a period of 18 months during which the applicants have to comply with the requirements under the guidelines and fulfil the other conditions as may be stipulated by the RBI,” the banking regulator said, adding that after being satisfied with the entities of compliance with the norms, licence will be given for commencement for banking operations.
“Until a regular licence is issued, the applicants would be barred from doing banking business,” the RBI said.
The bank licence process was started with the objective of promoting financial inclusion in February 2010 following a Budget announcement by former Finance Minister and now President Pranab Mukherjee. Three years later, the RBI released the final guidelines on licensing norms in February 2013. The deadline for submission of applications was July 1, 2013.
A total of 25 applicants, ranging from business conglomerates like the Birlas, the Anil Ambani group, Larsen & Toubro and Bajaj to non-banking financial companies like LIC Housing Finance and Edelweiss applied for the coveted licence. Another micro lenders, Janalakhsmi, also applied.
The move comes despite stiff opposition from the country’s main opposition, the Bharatiya Janata Party, which wanted the RBI to wait till the new government is formed after the election results next month.
The RBI had set up a high-level advisory committee under the chairmanship of former central bank governor Bimal Jalan to scrutinise the 25 applications. As suggested by the panel, the RBI has also ignored candidates which are under the glare of investigative agencies in scams like airwave spectrum auction and coal block allocation.
Interestingly, the Tata group withdrew its application citing stringent norms that stipulates a non-operative financial holding company structure.
In the last round of licensing, two new entities, Kotak and Yes Bank, were allowed to enter the banking sector in 2003-04.
The central bank has already said that from now on, issuance of banking licence will not be a once-in-a-decade affair. The RBI will fine-tune the guidelines and licences will be given on tap. There will also be differentiated licensing for entities such as payments banks, which are very different from universal banks.
Timeline on bank licensing in India:
Past Experience:
1947-1969: Following a spate of mergers and amalgamations, the number of commercial banks in the country decreased from 640 in 1947 to 85 in 1969.
July, 1969: 14 major commercial banks were nationalised with the basic objective of ensuring credit flow to priority sectors of the economy.
April, 1980: Six more commercial banks were nationalised.
January, 1993: Reserve Bank of India (RBI) released guidelines for licensing of new banks in the private sector. 10 new banks were formed on the basis of these guidelines. These were Global Trust Bank, ICICI Bank, HDFC Bank, Axis Bank, Bank of Punjab, IndusInd Bank, Centurion Bank, IDBI Bank, Times Bank and Development Credit Bank.
January, 2001: RBI revised the guidelines for new bank licences. Two new banks – Kotak Mahindra Bank and YES Bank – were formed.
Current Affair:
February 26, 2010: Former finance minister and now president Pranab Mukherjee announces in his budget speech (for 2010-11) that companies and business houses will be allowed to set up new banks.
August 11, 2010: RBI releases discussion paper on entry of new banks in the private sector.
December 23, 2010: RBI releases gist of comments from the feedback on the discussion paper.
August 29, 2011: RBI releases draft guidelines for licensing of new banks in the private sector.
July 10, 2012: RBI releases gist of comments from the feedback on the draft guidelines.
February 22, 2013: RBI releases guidelines for licensing of new banks.
July 1, 2013: Last date for submitting applications for new banking licence. RBI discloses names of 26 applicants for new banking licence – two of them drop out while one new player gets added to the list later.
September 4, 2013: RBI governor Raghuram Rajan announces setting up of a committee headed by Bimal Jalan to screen the applications.
November 1, 2013: Bimal Jalan committee holds its first meeting.
February 25, 2014: Bimal Jalan committee submits its report to RBI.
March 12, 2014: RBI seeks Election Commission's permission to issue in-principle approvals for banking licence.
April 1, 2014: Election Commission allows RBI to issue new bank licences.
April 2, 2014: RBI grants in-principle approval to IDFC and Bandhan Financial Services to set up banks. The in-principle approval will be valid for 18 months.
After the Election Commission have its go ahead on Tuesday, RBI’s committee of central board met on Wednesday morning to deliberate on the two names that were placed before it for approval.
The two entities which made the cut are IDFC, a diversified financial services firm with a special focus on infrastructure financing, and Bandhan, the country’s largest micro lender based in Kolkata.
The two entities will get one and a half years to commence operations, failing which their licences could be cancelled by the central bank. The central bank will also consider the application of India Post, but under a separate process to be carried out in consultation with the government.
The RBI statement said some of those entities who did not qualify in this round for a full-fledged banking licence could well apply in future rounds or could apply for differentiated licences under the proposed framework.
“The “in-principle” approval granted will be valid for a period of 18 months during which the applicants have to comply with the requirements under the guidelines and fulfil the other conditions as may be stipulated by the RBI,” the banking regulator said, adding that after being satisfied with the entities of compliance with the norms, licence will be given for commencement for banking operations.
“Until a regular licence is issued, the applicants would be barred from doing banking business,” the RBI said.
The bank licence process was started with the objective of promoting financial inclusion in February 2010 following a Budget announcement by former Finance Minister and now President Pranab Mukherjee. Three years later, the RBI released the final guidelines on licensing norms in February 2013. The deadline for submission of applications was July 1, 2013.
A total of 25 applicants, ranging from business conglomerates like the Birlas, the Anil Ambani group, Larsen & Toubro and Bajaj to non-banking financial companies like LIC Housing Finance and Edelweiss applied for the coveted licence. Another micro lenders, Janalakhsmi, also applied.
The move comes despite stiff opposition from the country’s main opposition, the Bharatiya Janata Party, which wanted the RBI to wait till the new government is formed after the election results next month.
The RBI had set up a high-level advisory committee under the chairmanship of former central bank governor Bimal Jalan to scrutinise the 25 applications. As suggested by the panel, the RBI has also ignored candidates which are under the glare of investigative agencies in scams like airwave spectrum auction and coal block allocation.
Interestingly, the Tata group withdrew its application citing stringent norms that stipulates a non-operative financial holding company structure.
In the last round of licensing, two new entities, Kotak and Yes Bank, were allowed to enter the banking sector in 2003-04.
The central bank has already said that from now on, issuance of banking licence will not be a once-in-a-decade affair. The RBI will fine-tune the guidelines and licences will be given on tap. There will also be differentiated licensing for entities such as payments banks, which are very different from universal banks.
Timeline on bank licensing in India:
Past Experience:
1947-1969: Following a spate of mergers and amalgamations, the number of commercial banks in the country decreased from 640 in 1947 to 85 in 1969.
July, 1969: 14 major commercial banks were nationalised with the basic objective of ensuring credit flow to priority sectors of the economy.
April, 1980: Six more commercial banks were nationalised.
January, 1993: Reserve Bank of India (RBI) released guidelines for licensing of new banks in the private sector. 10 new banks were formed on the basis of these guidelines. These were Global Trust Bank, ICICI Bank, HDFC Bank, Axis Bank, Bank of Punjab, IndusInd Bank, Centurion Bank, IDBI Bank, Times Bank and Development Credit Bank.
January, 2001: RBI revised the guidelines for new bank licences. Two new banks – Kotak Mahindra Bank and YES Bank – were formed.
Current Affair:
February 26, 2010: Former finance minister and now president Pranab Mukherjee announces in his budget speech (for 2010-11) that companies and business houses will be allowed to set up new banks.
August 11, 2010: RBI releases discussion paper on entry of new banks in the private sector.
December 23, 2010: RBI releases gist of comments from the feedback on the discussion paper.
August 29, 2011: RBI releases draft guidelines for licensing of new banks in the private sector.
July 10, 2012: RBI releases gist of comments from the feedback on the draft guidelines.
February 22, 2013: RBI releases guidelines for licensing of new banks.
July 1, 2013: Last date for submitting applications for new banking licence. RBI discloses names of 26 applicants for new banking licence – two of them drop out while one new player gets added to the list later.
September 4, 2013: RBI governor Raghuram Rajan announces setting up of a committee headed by Bimal Jalan to screen the applications.
November 1, 2013: Bimal Jalan committee holds its first meeting.
February 25, 2014: Bimal Jalan committee submits its report to RBI.
March 12, 2014: RBI seeks Election Commission's permission to issue in-principle approvals for banking licence.
April 1, 2014: Election Commission allows RBI to issue new bank licences.
April 2, 2014: RBI grants in-principle approval to IDFC and Bandhan Financial Services to set up banks. The in-principle approval will be valid for 18 months.
No comments:
Post a Comment