Delays push new bank permits close to polls and uncertainty

Finance ministry may extend date for granting licences to mid-2014

Written by Subhomoy Bhattacharjee | New Delhi | Published:May 28, 2013 3:42 am

D Subbarao,the outgoing governor of the Reserve Bank of India,is unlikely to begin receiving applications for new bank licences before his term expires in early September.

This has created a problem for the finance ministry: it pushes back the date for the grant of the licences to the middle of 2014 from the February-March period it was expecting. This would mean the first banks would get their papers only after the general elections.

Bank licences tops the list of financial sector reforms for the UPA government. Any delay in the process is embarrassing for Prime Minister Manmohan Singh’s bid to showcase before foreign investors that India is committed to fastracking growth in the economy. RBI has so far not indicated when it would put up its observations on queries posted by business groups on the draft norms for the licences.

Instead,in the Monetary Policy for 2013-14,RBI said it would release a paper on the roadmap for the banking sector. This is expected in late June,and the finance ministry is concerned about the potential for a clash between this paper and the coming bank licensing agenda. The last date to apply for a licence is July 1. Several business groups told The Indian Express that even if RBI were to come up with its observations now,four weeks would be too narrow a window for them.

When the central bank had asked potential applicants to submit their queries on the final guidelines by April 10,it was expected that it would issue clarifications by early May,ensuring that interested companies had enough time to finalise their applications. “Lots of queries have apparently been raised with the RBI. Potential applicants and stakeholders are waiting for clarifications. The July 1 deadline appears to be a very tight timeline to understand them and make changes in their applications,” Robin Roy,associate director,financial services,PricewaterhouseCoopers,said.

A delay is likely to ultimately mean that RBI would be ready to hand out the licences around the time of the general elections,and the Election Commission might then have to examine if an executive decision of this magnitude can be allowed.

An industrial group with interests in power and roads said they had asked RBI to examine if the current capital finance venture they had needed to be upgraded to a non-operative financial holding company.

Another group has argued there is little reason to reduce the equity of the promoters to 7.5 per cent within 12 years,since that was also the period in which the banks would become profitable.

The requirement of 40 per cent lending to the priority sector is distasteful to most potential applicants. None have begun setting up the organisational structure mandated by RBI to apply for a licence. But none wanted to come on record with their reservations.

Meanwhile,major changes are expected also in the department of financial services in the finance ministry. Umesh Kumar,joint secretary,DFS,is reportedly headed to the Asian Development Bank in Manila soon.

Many large business houses such as the Anil Ambani-led Reliance Group,Larsen and Toubro,the Tatas,Religare and NBFCs including Indiabulls and the Shriram Group have shown interest in applying for bank permits.

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