RBI will not give banking licences without legal backing: Subbarao
MDT/PTI 16 November 2012

According to the RBI Governor it will take at least eight-nine months to issue the first new bank licence if the Act is amended in the Winter Session of the Parliament

Pune: A day after Finance Minister P Chidambaram asked the Reserve Bank of India (RBI) to speed up the process of issuing new bank licences, Governor D Subbarao on Friday said it would be not possible without fulfilling the enabling conditions for the same, reports PTI.
"We have been preparing for launching this process (of issuing new bank licences) but all the ground work, all the enabling conditions for launching this work have to be fulfilled," he told reporters on the sidelines of a function.
Yesterday, Chidambaram had said he had asked RBI to finalise the guidelines for new bank 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," the Finance Minister had said.
"We hope that RBI will pick up the thread and finalise the guidelines and start receiving the application." 
The Minister had said that "the power or the authority" which RBI wants is already available in the other provisions of the law and with the central bank's own regulations and guidelines for new banking licences.
The last time RBI allowed new private banks was in 2002, prior to which it allowed new players in the mid-90s.
The RBI issued the final guidelines in August 2011 for entry of new banks, including those floated by corporates, but is waiting for the necessary legal powers before it proceeds further. The bank licences were initially slated to be issued way back in 2008-09.
The Governor was talking to reporters in Pune after inaugurating an RBI conference on 'Leveraging Cooperative Advantage'. 
"We are only formalising them by amending the Banking Regulation Act. And I have assured RBI that the Act will indeed be amended, hopefully in the Winter Session of Parliament, and if not in the Winter session then in the Budget session," Chidambaram had said in Delhi.
The Minister had said if RBI proceeded to receive application and process them, even then the first banking licence was not likely to be issued in the next six-eight months.
"So by the time the licence is issued and the banks come to existence, the Act would have been amended." 
The Finance Ministry wants RBI to speed up the process under the provisions of the Companies Act in its effort to create positive sentiment among investors and industry.
The Governor today said it will take at least eight-nine months to issue the first new bank licence if the Act is amended in the Winter Session which begins on 22nd November.
The 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 short cuts when it comes to issuing new bank licences. "We believed, we believe and we still believe that we need these powers to move forward.
"An amendment to the Banking Regulation Act is pending in Parliament for giving us the necessary powers, authority and dispensation to deal with corporates entering the banking sector," he had said.
The demands of the RBI include authorisation for superseding a bank's board and powers to authorise acquisition of shares beyond 5 per cent, among others.
As per the RBI's draft norms released in August 2011, private entities or groups owned and controlled by domestic promoters, with diversified ownership, sound credentials and integrity, and having successful track record of at least 10 years, would be eligible to promote banks.
1 decade ago
If FM feels that an amendment is not necessary to ‘give’ the powers sought by RBI(which include powers to supersede the board, to authorize the acquisition of shares beyond five per cent as well as powers for consolidated supervision and dispensation necessary to deal with companies that entered the banking sector), why not convince RBI about the position? During October, reports were there that FM had asked RBI officials whether the banking regulator could be given these powers without an amendment to the Banking Regulation Act. RBI Governor said in an interview on October 31 that RBI could not offer an informed response to this query from FM, because RBI believed that it needed those powers. North Block seems to have ignored the message in Dr Subbarao’s comment. The message was, RBI would be happy if the powers come through legislative amendment. The powers ‘given’ outside the Act provisions could be with stings and can also be taken back in a different situation through the same process(without legislative process). Statutory bodies like RBI should not be at the mercy of officials in ministries for the powers they are expected to exercise. RBI has burnt fingers on such issues relating to banks and even in internal issues like pension updation earlier due to blurred clarity in communication.

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