Both applicants will have to comply with the requirements within 18 months
The Reserve Bank of India (RBI), on Wednesday, granted ‘in-principle’ approval to two applicants, IDFC Limited and Kolkata-based Bandhan Financial Services Private Limited, to set up banks.
The RBI has also accepted the recommendation of the High-Level Advisory Committee (HLAC), set up by the RBI, to consider the application of the Department of Posts, separately in consultation with the Central Government.
The licences were issued a day after the Election Commission allowed the RBI to announce its decision on banking licences, “given that the Code of Conduct for the coming elections is in force,” the RBI said.
“The point we make is that the bank licensing in this country is a matter of trust, and you have to deserve that trust. We want to ensure that those people who can build that trust get the opportunity to get the licence,” said Raghuram Rajan, RBI Governor, while addressing a press conference on Tuesday.
These licences would be issued under the guidelines on Licensing of New Banks in the Private Sector issued on February 22, 2013 (Guidelines), said RBI in a release.
“These two applicants (IDFC and Bandhan) were also recommended as suitable for grant of “in-principle” approval by the HLAC,” it added. The “in-principle” approval granted will be valid for 18 months during which the applicants have to comply with the requirements under the guidelines and fulfil other conditions as may be stipulated by the RBI.
“On being satisfied that the applicants have complied with the requisite conditions laid down by the RBI as part of “in-principle” approval, they would be considered for grant of a licence for commencement of banking business under Section 22(1) of the Banking Regulation Act, 1949. Until a regular licence is issued, the applicants would be barred from doing banking business,” said the RBI.
After withdrawal by two applicants, 25 applications have been considered.
The RBI said that it assessed the quantitative and qualitative aspects of the applicants as per the criteria laid down in the guidelines. This included analysis of the financial statements of the key entities in the group, 10-year track record of running their businesses, proposed business model for the bank as well as the applicants’ demonstrated capabilities for running a bank, plan for expanding inclusion, and culture of compliance and integrity demonstrated by the applicant in its past activities. “Based on all this, the RBI took a view of the “fit and proper” status of the applicant,” it added.
“RBI’s approach in this round of bank licences could well be categorised as conservative. At a time when there is public concern about governance, and when it comes to licences for entities that are intimately trusted by the Indian public, this may well be the most appropriate stance,” said the RBI.
Going forward, the RBI intends “to use the learning from this licensing exercise to revise the guidelines appropriately and move to give licences more regularly, that is, virtually ‘on tap’”.
It will also frame categories of differentiated bank licences, building on its prior discussion paper, and this will allow a wider pool of entrants into banking. The RBI believes that “some of those entities which did not qualify in this round for a full-fledged banking licence could well apply in future rounds or could apply for differentiated licences under the proposed framework.”
‘Augurs well for economy’
“This is a very heartening development. After a long time, it has happened. It will pave the way for more entities to come forward and expand the banking network. It augurs well for the economy and banking sector,” Financial Services Secretary G. S. Sandhu told PTI.
Bandhan Financial Services Private, the first micro-finance firm to get a bank licence, said this was a recognition to the micro-finance sector and its hard work to reach un-banked areas and provide financial services.
“We will be able to offer full-fledged banking services to the poor people,” Bandhan Chairman Chandra Shekhar Ghosh said.
According to IDFC Chairman Rajiv Lall, “We prepared for the hard work, which begins from now. Our application was for a universal licence, and we are going to proceed with having a universal bank.”