FM expects 4-5 firms to get new banking licences

Last Updated: Wed, Jan 30, 2013 19:43 hrs

Amid a debate on whether or not industrial houses should be allowed in the banking space, Finance Minister P Chidambaram has said he does not see anything wrong in companies getting banking licences, subject to final Reserve Bank of India (RBI) guidelines, which should be issued in two weeks. The licences would be given to four-five companies after the guidelines, he hopes.

In an interview to Reuters TV, he said: “If the guidelines are formed and transparently spelt out, and if a company satisfies those, I don’t see why it should not be given a licence.”

He, however, made it clear he didn’t know if the final guidelines were not going to permit industrial houses, or any specific company, in the banking sector. “Whether or not a company or any kind of company will be excluded, I cannot say... RBI has drawn up draft guidelines, which say more licences will be given to the private sector... the governor told me he will give out guidelines in two weeks.”

In this interview, and the one with the Financial Times, Chidambaram said: “We expect four to five licences will be granted.”

This would be the first time since 2004 that RBI will be issuing licences to new players.

Chidambaram’s comments are significant, especially in the light of prominent voices against inclusion of industrial houses in the banking space. Notably, many economists and institutions, including Nobel laureate Joseph Stiglitz and the International Monetary Fund, have cautioned India on this. Former RBI governor, Y V Reddy, too, has advised careful weighing of risks vis-a-vis benefits before such a step.

In its draft guidelines, issued in August 2011, RBI had suggested firms could be allowed entry in banking, but with stringent conditions. It proposed diversified ownership, sound credentials and a successful track record of ten years among main conditions. Besides, those with more than 10 per cent of assets or income from real estate or brokerage business were proposed to be excluded from entering the space.

However, the finance ministry had wanted it to remove a clause in its final guidelines that did not allow promoters with real estate and stock broking businesses to apply for the licenses.

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