RBI to issue bank licences after EC nod: Raghuram Rajan
The central bank will issue bank licences in the next few weeks but only after EC’s approval, RBI governor said
By Remya Nair (source LiveMint)
New Delhi: The Reserve Bank of India (RBI) will issue new bank licences in the next few weeks, but only after getting the Election Commission’s (EC) nod to guard against the risk of violating the model code of conduct in the run-up to the general election, governor Raghuram Rajan said on Friday.
“I still have to get a formal approval from the EC. Though the process (for issuance of bank licences) has been going on for the past year, we will take EC’s approval,” Rajan told a press conference after a meeting of the RBI board.
On Wednesday, finance minister P. Chidambaram said granting new banking licences to the private sector will not be a violation of the model code of conduct, which came into effect on 5 March after the EC announced polling dates for the general election. EC officials couldn’t be reached for comment.
“Since these are private banks, there is a possibility of giving undue benefit to a particular category. So it is good that they are checking it with EC, which can take a considered view whether it should come under the model code of conduct,” said K.J. Rao, general secretary, Foundation for Advanced Management of Election (FAME), a non-governmental organization founded by former chief election commissioners.
The Bimal Jalan committee, set up by RBI to scrutinize bank licence applications, submitted its report last month. A panel comprising the governor and deputy governor is scrutinizing applications based on the panel’s recommendations. Once the panel finalizes its list, it will go to the central committee of RBI’s board for final nod. “If all goes well, we should be able to do it in the next few weeks,” Rajan said.
As many as 25 entities, including Aditya Birla Nuvo Ltd, Reliance Capital Ltd, L&T Finance Holdings Ltd and Bajaj Finserv Ltd, have applied for new bank permits.
RBI followed a rigorous scrutiny process wherein it enlisted the help of many government departments like the Central Bureau of Investigation, income tax department and enforcement directorate to gather details of promoters and their group companies.
The idea to allow more private sector entities to set up banks was floated in 2010, when then finance minister Pranab Mukherjee announced the government’s intent in his budget speech.
But RBI issued final norms only in February 2013, after the government passed the Banking Regulations Act, which gave RBI powers to scrutinize books of associate firms of the promoter group that wants to set up a bank. RBI also got powers to supersede the boards of banks.