No reason to deny bank licence to qualified corps: Chidambaram

Foreign currency traders work inside a trading firm behind the signs of various world currencies, in Mumbai May 24, 2012.

LONDON (Reuters) - Finance minister Palaniappan Chidambaram said on Tuesday he saw no reason why companies that fulfil all RBI criteria should be denied banking licences as part of plans to shake up the country's bank sector.

The Reserve Bank of India (RBI) is expected to issue final rules on new banking licences to private entities within a few weeks but many including the International Monetary Fund oppose allowing industrial houses to set up banks, fearing it could lead to misuse of funds.

"The RBI has drawn up draft guidelines, guidelines say that more licences will be given to the private sector. .. the governor told me he will give out guidelines in two weeks," Chidambaram told Reuters Television: "Whether any corporate or any kind of corporate will be excluded I cannot say."

"But if the guidelines are made out and transparently spelt out and if a corporate satisfies those guidelines, I don't see any reason why a corporate should not be given a licence."

The government believes that the opening the sector will pave the way for the creation of some world-size banks and that deep-pocketed corporates will be able to provide much-needed capital for banks.

The central bank had issued a draft set of guidelines in August 2011 barring entities with 10 percent or more income or assets from real estate, construction and broking activities from starting banks.

Chidambaram said checks would be in place to prevent misuse.

"There will be clear firewalls and red lines which cannot be crossed."

(Reporting by Sujata Rao and Carolyn Cohn; editing by Ron Askew)