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India poised to issue bank licences to corporate players

Source : REUTERS
Last Updated: Sat, Feb 23, 2013 12:34 hrs
Kashmiri people perform transactions at bank in Srinagar

Indian companies from any business sector will be allowed to seek entry to the country's banking industry as the government looks to bring banking services to the large proportion of the population without bank accounts.

The Reserve Bank of India (RBI) on Friday announced rules that would allow any type of company to apply for a banking licence, paving the way for India's first new banks since the formation of Yes Bank in 2004.

Draft rules issued in 2011 had barred companies in the property and brokerage industries from applying, and disagreement between the central bank and finance ministry over exclusions had slowed the release of the final rules.

Some critics, including the International Monetary Fund, had also voiced concern over the possibility of new banks issuing potentially risky loans to their related companies.

However, the final rules on Friday did not make any particular exclusions.

The move to issue new bank licences is intended to increase competition and bring fresh capital to an industry dominated by state lenders and reaches only about half of Indian households. Newly licenced banks will be required to open 25 percent of their branches in rural areas that lack banking services.

"India has a huge population of unbanked ... and the real concern is financial inclusion," said Rupa Rege Nitsure, chief economist at Bank of Baroda.

APPLICANTS LINING UP

At least 10 companies, mostly from the financial services sector, are expected to apply for licences. L&T Finance , part of construction and infrastructure conglomerate Larsen & Toubro Ltd , and billionaire Anil Ambani's Reliance Capital are among those that have said they are keen to apply.

The RBI will allow applications until July 1 and successful applicants have a year to set up a bank. New banks must make a stock market listing within three years - one year longer than had been proposed in the draft rules.

The RBI said licences will be issued on a "very selective basis" to applicants with "an impeccable track record".

The rules are intended to ring-fence a company's regulated financial services operations from the rest of the group, the RBI said on Friday.

"What is good is that the RBI has put in a lot of checks and balances. The exposure norms they have defined have taken care of all the risks that people would have been worried about," said Naresh Makhijani, executive director at KPMG.

Religare Enterprises Ltd , Aditya Birla Financial Services and Mahindra Financial Services all said on Friday that they plan to apply for licences.

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