Rejected entities in April round to re-apply as non-universal banks
Coming in the backdrop of PM Narendra Modi’s special push for a 100 day agenda to every ministry, the Finance Ministry is likely to expedite the finalization of the pending norms for differentiated banking guidelines by July-end - this in turn will set the pace for the clearing bank licences for those rejected in the previous round in April by the RBI. “We are working on the draft guidelines for diffentiated banking and are likely to finalise it after the Budget (by July end),” GS Sandhu, Banking Secretary of the Finance Ministry told The Pioneer.
In the first week of April and after a formal clearance from the Election Commission (EC) the RBI had awarded universal banking licences to two entities - the infrastructure financing firm IDFC and a Kolkatta based microfinance institution Bandhan. The applications of other 23 from 25 applicants that included corporate heavyweights ADAG Group, Aditya Birla Group and Bajaj Group were rejected, following the vetting by the Bimal Jalan Committee. Sandhu said those wishing licence would have to re-apply thereafter.
Subsequently, RBI Governor Raghuram Rajan had said that henceforth all banking licence would be available ‘on tap’ and would not be dependent on GOI notification as a annual exercise as was being done till now. However, since then the various entities have not been able to avail the opportunity as many of them seek to apply under differentiated banking norms which are less stringent than the universal banking category and has less base capital requirement of around Rs 50- 100 crore.
Under section 5 (B) of the Indian Banking Regulation Act, 1949, these entities are reponsible for collecting deposits, lending, investment from the public which is repayable on demand by a cheque or draft. With this, India largely has universal banking through NBFCs, commercial banks, cooperative banks and does not have niche banking services. It has been proposed in the last few years, like in many developed economies and for a larger expansion of banking channels in India as well as financial inclusion purpose differentiated banking or graded banking like wholesale bank and investment banks should be made feasible.
The Nachiket Mor Committee on financial inclusion suggests that since adult banking in India is restricted to just 30 per cent of the total population and the banking in the rural hinterland does not necessarily involve the other functions of universal banking like refinancing, corporate lending, asset management, insurance and even stock broking, the banking system in India should be graded.
RBI has, of late, has re-intiated, the granting of licences to private entitites who meet a set of pre-requisites like a long experience in financial or bank like operations and do not have any history of defaults. RBI has also been wary of granting licences to corporates who have sought universal bank licence in the wake of the fact that the latter’s propensity to misuse the monetary assets and divulge capital could jeopradise the interest of the public. In the last round, many corporates have been left out on this condition and by various experts on the misuse of the bank operated by the corporate parent.