Business Today

Union Budget 2011-12 could permit setting up of new private banks

The RBI is close to finalising the guidelines for entry of new banks in the private sector, based on its consultations with the government and various stakeholders.

twitter-logo PTI   New Delhi     Last Updated: February 2, 2011  | 17:43 IST

India is considering allowing new private sector banks, including by industrial houses, and a roadmap for the same could be announced in the annual Union Budget to be presented later this month.

While the formal and final guidelines would be announced by Reserve Bank of India (RBI) on who should be allowed to set up new banks and what should be the terms and conditions for them, a roadmap on the subject could be announced in the Budget speech on February 28 by Finance Minister Pranab Mukherjee, sources added.

In his Budget speech last year, Mukherjee had said that there was a need for extending the geographic coverage of banks and improving access to banking services.

The RBI is close to finalising the guidelines for entry of new banks in the private sector, based on its consultations with the government and various stakeholders, as also the feedback to its August 2010 discussion paper on the issue, sources in the know said.

Among the various options, RBI is considering grant of licence for small banks for initial few years, which could be upgraded to full-fledged banking licences after the central bank is satisfied with their performance and fulfillment of certain criteria, sources said.

The guidelines would dwell upon issues like minimum capital for new banks and promoters contribution, minimum and maximum caps on holding of promoters and others, foreign shareholding, business model for the new banks and whether industrial houses, NBFC (non-banking financial companies) could be allowed to run banks.

Among others, a number of corporate houses, including Anil Ambani-led Reliance group, the Aditya Birla group and the Religare group, have expressed interest in obtaining banking licences. A number of NBFCs and micro-finance institutions are also said to be interested in the banking business.

Mukherjee had said in his Budget speech in February 2010 that RBI was considering giving some additional banking licences to private sector players and NBFCs could also be considered, if they meet the RBI's eligibility criteria.

Pursuant to this, RBI in its Annual Policy Statement in April 2010 said that it would prepare a discussion paper marshalling the international practices, the Indian experience as well as the extant ownership and governance guidelines for grant of new private sector banking licences.

The discussion paper put out for feedback on August 11, 2010 and thereafter the central bank also held discussions with various stakeholders from the industry, banks, NBFCs and MFIs, consultants and other entities.

Later in December 2010, the RBI made public the gist of comments received on its discussion paper and said that "the range of comments received has been very wide and does not indicate consensus on any of the issues."

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