Financial Services Secretary GS Sandhu said on Thursday that the RBI will bring out guidelines on differentiated banks and “on-tap” bank licences in the next four months and then start inviting applications for the same.
In April, the RBI had decided to grant “in-principle” approval to two applicants – IDFC and Bandhan Financial Services – to set up banks out of 25 applicants.
Terming its approach in that round of bank licences as “conservative”, the RBI then said it will use the learning from the exercise to revise the guidelines and move to give licences more regularly, that is, virtually “on tap”.
The regulator said it will also frame categories of differentiated bank licences, building on its prior discussion paper, and this will allow a wider pool of entrants into banking.
The RBI said some of those entities who did not qualify in that round for a full-fledged banking licence could well apply in future rounds or could apply for differentiated licences under the proposed framework.
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Those who did not get the licence included public sector entities such as India Post and IFCI and private sector players such as Aditya Birla group, Anil Ambani group, Muthoot Finance, Bajaj Finance, Shriram Capital and Religare Enterprises.
RBI governor Raghuram Rajan said that the central bank can take more of a chance with new players if they get the licence to open only a small bank or to conduct only one segment of banking business. “Such differentiated licences – licences with restrictions on the geographical reach or the products offered by a new bank – can generate more organisational variety and efficiency,” he said. He added that small banks could be better at catering to the needs of small and medium enterprises.
Sandhu, who made a presentation before the finance minister Arun Jaitley on the issues facing the financial services sector, said he also discussed the issues of bank capitalisation and bad loans.
To meet their huge capital requirements, estimated to be between Rs 5 lakh crore and Rs 8 lakh crore in the next five years to meet the Basel-III norms, the government is considering various options to help PSBs raise the needed capital other than through budgetary support including selling off their non-core businesses and allowing them to set up a special purpose vehicle (SPV) to monetise their real estate assets.
The RBI recently approved a proposal of PSBs to issue shares to their employees to mobilise capital.
The other proposal is to allow a rights issue for minority shareholders so that they get the option to retain their shareholding by subscribing to the tier-I bond issues. Besides, there is also a proposal of channelising pension and insurance funds to the banking sector by allowing them to invest in tier-I perpetual bonds issued by PSBs.
Chidambaram recently said PSBs will need capital to the tune of Rs 45,528 crore this fiscal. In the interim budget in February, the government had allocated only Rs 11,200 crore for bank capitalisation. Sandhu had said the government is likely to infuse additional capital between Rs 6,000-8,000 crore in PSBs.
Sandhu said bad loans in PSBs banks are still a cause for concern for the government. Vigorous recovery efforts of PSBs ensured that the gross non-performing assets in January-March quarter in 2013-14 improved to 4.44% from 5.07% in the previous quarter.
Warning wilful defaulters, Sandhu said PSBs may go in for change in management of the defaulting entity if it fails to repay loans.