RBI sticks to its guns on bank licenses, says groundwork still to be fulfilled

A day after Finance Minister P. Chidambaram asked the Reserve Bank of India (RBI) to speed up the process of issuing new bank licences, D. Subbarao, governor of the central bank said that it would be not possible without fulfilling the enabling conditions for the same.

"We have been preparing for launching this process (of issuing new bank licences) but all the groundwork, all the enabling conditions for launching this work have to be fulfilled," he told reporters on the sidelines of a function in Pune.

The last time RBI allowed new private banks was in 2002, prior to which it allowed new players in the mid-90s.

On Thursday, Chidambaram had said he had asked RBI to finalise the guidelines for new licences and start accepting applications for the same pending passage of the Banking Laws (Amendment) Bill.

"We have written to RBI recently urging them to proceed to finalise the guidelines and proceed to receive applications for new banking licences in anticipation of the amendment in the Banking Regulation Act," Chidambaram had said.

The central bank issued the final guidelines in August 2011 for entry of new banks, including those floated by corporates, but is waiting for necessary legal powers before it proceeds further. The licences were initially slated to be issued way back in 2008-09.

Subbarao said it will take, at least, eight to nine months to issue the first licence if the Act is amended in the Winter Session of Parliament.

Amendments to the Act will invest RBI with supervisory powers over private companies that would enter the banking sector. Specifically, RBI wants legal powers to supersede the board of any new banking player in case of irregularities.

At the October 30 credit policy announcement also, Subbarao ruled out any shortcuts when it comes to issuing new bank licences.

with inputs from PTI