HIGHLIGHTS:

  • One of Reserve Bank of India’s internal committee suggested reconditioning the licensing policy for the existing private banks
  • With a proper Banking Regulation Act, large corporate houses should be allowed to proffer banks in the nation
  • This amendment should work towards restraining collective risks and persisting money lending within the groups

The question of letting big corporates set-up banks have been discussed many times in the past years. The Banking Laws discounted it and the corporates pushed the amendment back, fewer times in the past. Along with this the RBI also suggested that considering the current 15 % capitals the promoters are allowed to hold after 15 years they can hold up to 26%.

It is further decided that the Non-Banking Finance Companies (NBFCs) with 50,000 crore and up assets with 10 years of track record will be allowed to convert into banks. The payment banks with the track records of only 3 to 4 years can also turn into Small Banking Finance Companies (SBFCs). This is great news for all those large corporate houses who applied for banking licences but were turned down by RBI in the past.

The ‘fit and proper’ norms of the RBI through which they allow or reject applications have also been reviewed by the committee. When asked about the vision of this regulation, Sachin Chaturvedi a member of the panel said, “The idea is to ensure that there is enough capital for private sector banks in line with the vision of a $5 trillion economy. In addition, we have sought to ensure a level-playing field between the new entrants and existing players”.

The Industrialists speculated that it would take for this proposal to act as a law. 3-4 NBFCs would apply for banking licenses and 3-4 banking companies backed by large business houses would become banks. The panel further ruled in, “No intermediate sub-targets between 5-15 years may be required. However, at the time of issue of licences, the promoters may submit a dilution schedule which may be examined and approved by (the RBI)”.

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