India's largest banking union, AIBEA, has lodged an official protest with the EC about the RBI’s hurry to grant new banking licenses when the country is moving towards general elections to elect a new Parliament. The union says, you cannot overlook political views while granting new licenses

All India Bank Employees Association (AIBEA) has asked the Election Commission (EC) not to give any permission to the Reserve Bank of India (RBI) to go ahead with the issue of new banking licenses, especially to corporate houses.

"Handing over banking licenses to corporate and business houses is a clear retrograde move. Particularly, when the country is moving towards general elections to elect a new Parliament, RBI's hurry in this regard overlooking the political views of the Parliament would be unfair," CH Venkatachalam, general  secretary of AIBEA said in a letter sent to Chief Election Commissioner (CEC) VS Sampath.

According to AIBEA, it is our bitter experience borne out by facts that a very large part of the bad loans of banks today are due to the private corporate sector and many business houses who are wilful defaulters. It said, "Prior to nationalization of the banks in 1969, most of the banks in India were owned by one or the other industrial or business house.  Their mismanagement and abuse of people's money resulted in nationalisation of banks."

Earlier in December, the bank union had pointed out that the top four bad loan accounts add up to a massive Rs22,666 crore, which include Kingfisher Airlines and Winsome Diamond and Jewellery Co.

"Over the past seven years, there are fresh bad loans worth Rs4.95 lakh crore only in public sector banks (PSBs), while during the same period, these lenders wrote off bad debts worth Rs1.4 lakh crore. Gross non-performing assets (NPAs) and bad loans in the PSBs have increased to Rs1.64 lakh crore as on 31 March 2013 from Rs39,000 crore as on 31 March 2008," AIBEA had said.

A report of the Parliamentary Standing Committee on Finance has also said, "Banking being a highly leveraged business involving public money and public welfare, the Committee are of the considered opinion that it will be more in the fitness of things to keep banking and industry separate. The Committee therefore desire the government and RBI to review the licensing guidelines accordingly."

According to a report from Times of India, the EC has asked RBI to explain why the final announcement of the new bank licences had to wait until after the announcement of polls, when the process had been on for so long. The Commission also sought to understand the urgency behind announcing the new licences in the middle of the poll season.

"What difference will it make if the new licences are announced six weeks beyond the proposed March-end announcement, as the polls would be over by then?" an official from the EC, who did not wish to be identified, told the newspaper.

Earlier this month, finance minister P Chidambaram had said the code of conduct would not be a deterrent for issuing the new bank licences as RBI was spearheading a process, which started a year ago.

To recapitulate, in 1969, fourteen large banks in the country were nationalised followed by six more in 1980. Subsequently, RBI gave licences to 12 private banks, in two phases, including conversion of a cooperative bank into a commercial bank. In the second phase, licences were issued to Yes Bank and Kotak Mahindra Bank way back in 2004. So, it is exactly a decade now, the RBI will be embarking on issuing additional licences in the banking sector, as the volume has grown to an estimated Rs80 lakh crore, and is still growing!

The initial press report indicates that the Bimal Jalan Panel has submitted its findings and it has made its recommendations to the RBI. No names have been given as the selection and announcement will be made by the RBI in due course.

It appears that there are a few serious contenders from government-owned organizations, such as IDFC, IFCI, LIC Housing Finance, Power Finance Corporation, Rural Electrification and India Post. In the corporate field, there are a few applicants Reliance Capital, Aditya Birla Nuvo, Shriram Capital, Bajaj Finserv and L&T Finance.

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