Budget could permit new private banks

New Delhi, Feb 2 (PTI) India is considering allowing newprivate sector banks, including by industrial houses, and aroadmap for the same could be announced in the annual UnionBudget to be presented later this month.

While the formal and final guidelines would be announcedby RBI on who should be allowed to set up new banks and whatshould be the terms and conditions for them, a roadmap on thesubject could be announced in the Budget speech on February 28by Finance Minister Pranab Mukherjee, sources added.

In his Budget speech last year, Mukherjee had said thatthere was a need for extending the geographic coverage ofbanks and improving access to banking services.

The Reserve Bank of India (RBI) is close to finalisingthe guidelines for entry of new banks in the private sector,based on its consultations with the government and variousstakeholders, as also the feedback to its August 2010discussion paper on the issue, sources in the know said.

Among the various options, the RBI is considering grantof licence for small banks for initial few years, which couldbe upgraded to full-fledged banking licences after the centralbank is satisfied with their performance and fulfillment ofcertain criteria, sources said.

The guidelines would dwell upon issues like minimumcapital for new banks and promoters contribution, minimum andmaximum caps on on holding of promoters and others, foreignshareholding, business model for the new banks and whetherindustrial houses, NBFC (non-banking financial companies)could be allowed to run banks.

Among others, a number of corporate houses, includingAnil Ambani-led Reliance group, the Aditya Birla group and theReligare group, have expressed interest in obtaining bankinglicences. A number of NBFCs and micro-finance institutions arealso said to be interested in the banking business.

Mukherjee had said in his Budget speech in February 2010that RBI was considering giving some additional bankinglicences to private sector players and NBFCs could also beconsidered, if they meet the RBI''s eligibility criteria.

Pursuant to this, RBI in its Annual Policy Statement inApril 2010 said that it would prepare a discussion papermarshalling the international practices, the Indian experienceas well as the extant ownership and governance guidelines forgrant of new private sector banking licences.

The discussion paper put out for feedback on August 11,2010 and thereafter the central bank also held discussionswith various stakeholders from the industry, banks, NBFCs andMFIs, consultants and other entities.

Later in December 2010, the RBI made public the gist ofcomments received on its discussion paper and said that "therange of comments received has been very wide and does notindicate consensus on any of the issues." .