The suspense over the number of new banking licences to be issued by the Reserve Bank of India (RBI) has ended. Finance Minister P Chidambaram said in Bangalore on Saturday that the RBI would shortly issue seven licences.  

The announcement comes a day after RBI Governor Raghuram Rajan announced the names of the three members who will assist former governor Bimal Jalan in the external committee to vet the applications shortlisted by the central bank. The Jalan panel will propose the final slate to the RBI central board.

Addressing a function at the State Bank of Mysore, Chidambaram said the new banks should not try to become clones of existing banks. “We don’t want the seven of them to look like each other with different mastheads. We want each one of them to cater to the needs of a special group of customers. You will have competition, efficiency and progress only if people attempt different things and do things differently,” he added.

Though the finance minister didn’t elaborate, the RBI had earlier talked about differentiated licensing on the lines of the US and Singapore.

Differentiated licensing could enable specialists such as infrastructure lenders or gold loan companies to do niche lending and get a regulatory treatment different to what it is for existing banks. The RBI had in August this year suggested that after years of a single-track approach to bank licensing, it could consider different types of licensing. “With the broadening and deepening of the financial sector, some banks may choose to operate in niche areas. This has certain obvious advantages in terms of managing business and also risk management. Some countries have a differentiated bank licensing regime where differentiated licences are issued specifically outlining the activities that the licensed entity can undertake,” an RBI paper had said.

While Singapore has five different kinds of licences, Hong Kong has a three-tier structure. As many as 26 firms, including top corporate houses such as Tata Sons, L&T, Reliance Group, Aditya Birla Nuvo, Bajaj, Shriram and Religare have sought banking licences. Among public sector units, India Post and IFCI have submitted applications. Microfinance institutions such as Bandhan Financial and Janalakshmi Financial, too, have expressed interest.

On his first day in office, Rajan had said the licences would be issued by January next year. He said also the RBI intended to make the banking licensing process "more frequent". The Reserve Bank had issued guidelines for the latest round of bank licences on February 22 this year and had come out with clarifications in June.

In the past 20 years, the RBI has licensed 12 private banks in two phases. Ten banks were licensed on the basis of guidelines issued in January 1993. The guidelines were revised in January 2001 and fresh applications were invited. Kotak Mahindra Bank and YES Bank were the last two entities to get licences in 2003-04.

Meanwhile, commenting on infusing more capital into public sector banks than what was announced in Budget 2013-14, the minister said the government was waiting for banks to come up with specific plans. “Banks will be encouraged to lend more in certain sectors at lower rates to boost demand. Let each bank come up with what it can do. Then we can aggregate the demand and calculate what additional capital they require, and they will be provided that,” he added. (Business Standard)