The Parliamentary Standing Committee on Finance today sought an explanation from the Reserve Bank of India (RBI) on its draft proposal of granting banking licences to corporate houses. Questioning the RBI on why,like 3G telecom licences,banking licences should not be auctioned,the committee said that granting banking licences to corporates may not serve the purpose of financial inclusion,sources told The Indian Express. The RBI in its draft guideline has proposed that with a minimum capital requirement of Rs 500 crore,private sector entities or groups,owned and controlled by residents,will be eligible to promote banks. The RBI may seek feedback on applicants on these aspects from other regulators and enforcement and investigative agencies such as Income-Tax,CBI,Enforcement Directorate,etc. as appropriate, the draft said. Several Members of Parliament (MPs),present at the meeting of the committee today,also asked the central bank whether it has devised any mechanism to deal with frauds while formulating the proposal to grant banking licences to corporate houses. The MPs also said that the proposal might not help serve the purpose of rural penetration of the banking sector. Giving an example they pointed towards the insurance sector,which,according to them,has not been able to penetrate into the rural areas as it was expected to do. According to the sources,the MPs also stated that if industry houses are allowed into the banking sector,it might impact the functioning of nationalised banks. The panel,under the chairmanship of BJP leader Yashwant Sinha,also questioned the central bank over the continuous monetary tightening,which has not led to a decline in inflation. Rather,it has led to a visible slowdown in industrial activity and the economic growth in the country,it said. We asked the RBI whether or not it has been a policy failure on the part of the central bank, the sources said. The RBI has raised key interest rates 12 times in the last 18 months and there are indications that given the surging headline inflation,the central bank will continue with its hawkish stance . The headline inflation for the month of September stood at 9.72 per cent whereas food inflation has been above 9 per cent for most of the year. The constant rate hikes have led to a dip in investment and industrial activities have come down. The index of industrial production stood at 4.1 per cent in August.
