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Updated: November 16, 2012 22:58 IST

No new bank licences sans legal backing: Subbarao

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A file picture of RBI Governor D. Subbarao. Photo: R. Ravindran.
The Hindu
A file picture of RBI Governor D. Subbarao. Photo: R. Ravindran.

A day after Finance Minister P. Chidambaram asked the Reserve Bank of India (RBI) to speed up the process of issuing new bank licences, RBI Governor D. Subbarao, on Friday, said it would be not possible without fulfilling the enabling conditions for the same.

“We have been preparing for launching this process (of issuing new bank licences) but all the ground work, all the enabling conditions for launching this work have to be fulfilled,” he told reporters on the sidelines of a function here.

Mr. Chidambaram, on Thursday, said he had asked the RBI to finalise the guidelines for new bank licences and start accepting applications for the same pending passage of the Banking Laws (Amendment) Bill.

The last time the RBI allowed new private banks was in 2002, prior to which it allowed new players in the mid-90s. The RBI issued the final guidelines in August 2011 for entry of new banks, including those floated by corporates, but is waiting for the necessary legal powers before it proceeds further. The bank licences were initially slated to be issued way back in 2008-09.

The RBI Governor said it would take at least eight-nine months to issue the first new bank licence if the Act was amended in the Winter Session which begins on November 22.

The amendments to the Act will invest RBI with supervisory powers over private companies that would enter the banking sector. Specifically, the RBI wants legal powers to supersede the board of any new banking player in case of irregularities.

Too high

Amidst demand for easing of interest rate, Dr. Subbarao, said inflation was “quite high” at 7.45 per cent even as the bank was conscious about economic growth.

His remarks come as headline inflation fell to an eight-month low of 7.45 per cent in October from 7.81 per cent in the previous month. “At 7.45 per cent, inflation is certainly quite high,” Dr. Subbarao said, adding the central bank was always on “high alert” on the inflation front.

The RBI was also concerned about economic growth. “We’re always on high alert, high alert about growth, about inflation certainly,” he said.

Cooperative ethic

Earlier, inaugurating an RBI conference on ‘Leveraging cooperative advantage’, Dr. Subbarao said despite infirmities, co-operative banks were playing a vital role in furthering financial inclusion.

He noted that as on April 1, 2012, there still remained 41 co-perative banks which could not meet even relaxed licensing norms.

“To maintain integrity of co-operative system and protect public interests, the RBI imposed directions on these 41 banks prohibiting them from accepting fresh deposits,” he said. He, however, made it clear that the directions did not imply any ban on normal operations of banks with existing account holders.

Reviewing the progress and contribution of the co-operative sector, the Governor also underlined the need to “professionalise” both the governance structure and functioning of these institutions.

“The co-operative system can become effective instrumentally for inclusive growth and a powerful platform for enfranchising the less privileged,” he said.


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Mr. Subbarao is right with his legal procedure thought. Although banking
reforms is need of the hour but we should not compromise with licencing
norms or legal implications. Finance Ministry should be concerned about
the norms of RBI before making any comment which could create negative
rumor in the mind of common people that higher ministries or regulating
bodies are differing in their approaches.

from:  Shubham Yadav
Posted on: Nov 18, 2012 at 10:54 IST
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