FM asks RBI to bring out final bank licence norms

Finance Minister P Chidambaram has asked the Reserve Bank of India (RBI) to start working towards issuing the final guidelines for new banking licences and receiving applications from interested entities. The development comes even as the central bank insists on amending the Banking Regulation Act before such a move.

On another area of disagreement between the RBI and the finance ministry, a repo rate cut, Chidambaram said it was a matter of judgement on the part of the central bank and he looked towards the “more promising future” that the monetary authority had talked about.

The minister said he wanted the RBI to move towards fresh licences for banks “in anticipation of the Act being amended”.

“There is a road map and we have written to the RBI recently, urging them to proceed to finalise the guidelines and proceed to receive applications for new bank licences in anticipation of the Act being amended,” Chidambaram told reporters today after reviewing the performance of public sector banks with their heads.

He said the powers the RBI wanted through the amendments were already available from other legal provisions and its own regulations and guidelines.

“We are only formalising them by amending the Act. And, I have reassured the RBI the Act will indeed be amended, hopefully in the winter session. If not in the winter session, then in the Budget session,” he said.

He said the RBI might not need those powers immediately, as issuance of the first licence would take six to eight months. “The first occasion to exercise those extraordinary powers will not arise the next day (after the issuance of a licence). It will arise much later. So, by the time the licence is issued and the bank comes into existence and begins to function, the Act would have been amended,” he said.

Earlier, the Reserve Bank had said it would not issue the final guidelines without the amendments. Amendments to the Act have now been clubbed under the overall Banking Laws (Amendment) Bill, 2011. The Bill seeks to empower the RBI to supersede the boards of directors of banks for a period not exceeding six months, in the interest of depositors or for securing proper management of any banking company.

When asked about a rate cut, Chidambaram said, “RBI has added two or three paragraphs in the end (of the policy document), which point to a more promising future and I said I look to the future.” (Business Standard)