No reason to deny bank licence to qualified corps: Chidambaram

LONDON Wed Jan 30, 2013 10:14am IST

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

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

Credit: Reuters/Vivek Prakash/Files

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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)

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Comments (2)
aahuf wrote:
FM is right, but we must realise that RBI does not have preventive mechanism in place- in case managements decide to misuse. Being private- these banks escape from the CVC control also, based on funny logic that it is private money, whereas the fact of the matter is that Banks lend money raised from public deposits. World over experience is that it is difficult to ensure proper controls on large houses in such cases. in our own country- Bank Of Rajasthan, Global Trust Banks are examples.

Jan 30, 2013 10:51am IST  --  Report as abuse
lswain wrote:
The Finance Minister has put the ball sqarely in the Central Bank’s court – it is RBI that will set up the eligibility guidelines!
However, it is a moot question whether corporates should be permitted to set up banks – there are far too many issues of Public Interest at stake!!
I would support extending eligibility to professionally-run corporates, whose cash surpluses may be put to good use. However, elaborate checks and balances need to be put in place, in order to prevent the sponsoring corporate / group to siphon off funds from the bank or to prevent bad credit decisions.
The eligibility criteria must, however, be equitable and leave no scope for ambiguity or for unwarranted regulatory scrutiny.

Jan 30, 2013 4:30pm IST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

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