RBI says will reach consensus with govt

Last Updated: Sat, Feb 09, 2013 05:04 hrs

The Reserve Bank of India (RBI) has said before issuing the final norms on fresh banking licences, it would arrive at a consensus with the government on allowing brokerages and real estate developers into the sector. In its draft guidelines on new licences, RBI had said entities for which real estate, construction and brokerage activities accounted for at least 10 per cent of the income or assets would be barred from opening banks. But, the government has stepped up pressure to allow licences to these entities.

"When there is consultation, obviously, you have to take into account the other side, its viewpoints. We will come to a mutual position and then issue (the guidelines)," RBI Deputy Governor Anand Sinha said on the sidelines of an event. In December, Parliament had amended the banking laws to give greater powers to the central bank, including the power to supersede bank boards. At that time, it was expected RBI would release the final norms on banking licences soon. The process was delayed after the finance ministry told RBI that brokerages and real estate companies should be considered eligible for opening banks.

Asked when the final norms would be released, Sinha said, "Quite soon." On when RBI would start issuing licences, Sinha said, "There is a process…once the final guidelines are issued, you will give them some time to apply. Then, there is internal scrutiny...then external scrutiny. All this will certainly take a few months."

"(Regarding) corporates, the basic issue is the possibility of self-dealing. Nevertheless, in the draft guidelines, we have said we will go ahead," he said. Recently, the International Monetary Fund (IMF) had said industrial houses shouldn't be allowed into the banking segment. This led to RBI reconsidering the issue. "International experience has supported the prudent policy position of disallowing industrial houses from promoting and owning banks," IMF's Financial system stability assessment of India' report had said.

Nobel laureate Joseph Stiglitz had also advised against giving banking licences to industrial houses. C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, had suggested while issuing banking licences, the non-corporate sector be preferred.

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