REC decides not to apply for bank licence

REC decides not to apply for bank licence

Last Updated: Sat, Dec 01, 2012 06:24 hrs
A power-generating windmill turbine is pictured in Suzlon wind farm at Sanodar village

Rural Electrification Corporation (REC), keen to set up a new bank with Power Finance Corporation (PFC) and IFCI, has lost interest and will not apply for a licence, chairman and managing director Rajeev Sharma told Business Standard today.

"We are not interested. There was an announcement in the Budget (on new bank licence issue) but after that, nothing has happened. So, at this stage, we aren't keen," he said.

Then finance minister and now President Pranab Mukherjee, in his Budget speech of 2010-11, had announced the Reserve Bank of India (RBI) was considering giving some additional banking licences to private sector entities and to non-banking financial companies (NBFCs). REC, PFC and IFCI are all NBFCs.

Following the Budget announcement, RBI had issued a discussion paper in September 2010 and after a year, it had issued the draft norms. RBI's saying only entities in the private sector would qualify had made stakeholders seek clarifications, reflected in the feedback to the draft norms. Stakeholders wanted clarity on whether entities with indirect government control through shareholding by public financial institutions would be eligible to apply for banking licences. As of September, government shareholding in REC was 66.80 per cent, according to Bombay Stock Exchange data.

LIC, the state-run insurance behemoth, was also interested in setting up a bank.

Recently, the central bank had said it would only issue new licences after having more power, such as the authority to supersede the board of a bank. This would require amending the Banking Regulation Act.

The finance ministry is nudging RBI to issue new bank licences within the current framework, while assuring the law will be amended in due course of time.

However whether public undertakings can establish new banks would be clear only after RBI issues the final guidelines on new licences.

Media reports earlier suggested REC, PFC and IFCI were in talks with two foreign banks to jointly establish a new bank, to create more reach and have a diversified ownership. The RBI draft guidelines said, "Promoters/promoter groups with diversified ownership, sound credentials and integrity that have a successful track record for at least 10 years in running their businesses shall be eligible to promote banks."

More from Sify: