Reserve Bank Deputy Governor K. C. Chakrabarty on Tuesday said the Reserve Bank of India (RBI) is open to let realty and brokerages run banks if they meet the “fit and proper criteria” as detailed in the final guidelines.
“These are all legitimate businesses if they can demonstrate that they satisfy all the requirements, all the concerns how can you deny them. Definitely, if this is not in the guidelines, then it is open,” Mr. Chakrabarty said when asked whether real estate and brokerage firms would be allowed to start banks as final guidelines were silent on the issue.
He was talking to reporters on the sidelines of an event and this was the first official reaction from the regulator after it released the final guidelines for new banking licences last Friday.
The final guidelines by the RBI made a climb-down from the initial stance, which in the draft norms issued in August 2011, had virtually barred Realtors and brokerages from its eligibility criteria. “There are certain activities, such as real estate and capital market activities, in particular broking activities, which apart from being inherently riskier, represent a business model and business culture which are quite misaligned with a banking model,” the draft guidelines had said.
When asked about the number of licences that may be issued, the senior official said the number of new banks will depend on the eligible candidates and it is too premature to give a specific count now. “First, let’s see how many people are eligible, how many are fit and proper. If no body is fit and proper, then what is the use of giving licences? This is all too premature to talk about the number of licences to be issued,” Mr. Chakrabarty said.
He also said the proper guidelines are any regulator’s master stroke. “It is any regulator’s master stroke, why only RBI. And that is why fit and proper guidelines have been evolved...,” he said.
Last Friday, the central bank released the final guidelines for new banking licences which said an applicant should be “fit and proper” for getting a licence and have a 10-year impeccable track record.
It has allowed business houses, state-run enterprises and non-banking finance companies (NBFCs) to apply for licences to set up banks.
Mr. Chakrabarty also said the new banks will have to find businesses in rural areas and SME space, among others, as the priority sector lending norms will be the same for them like others.
On consolidation in the banking sector, Mr. Chakrabarty said the RBI may come up with a paper addressing the concerns. “If we are talking of new banking licences, then don’t talk of consolidation. These are two contradictory things. Consolidation is a defined issue. Some paper will come out that may be addressing some of these issues,” he said.