Raising serious doubts about the Government's move to grant entry to corporate houses in the banking sector, a Parliamentary panel has questioned the validity behind the move saying that while not a single applicant has come forward despite the fact that the policy for rolling out private banks was announced on February 22 by the Reserve Bank of India (RBI), taking such a decision in the post-slowdown era seems illogical.
RBI Governor D Subbarao had a tough time facing members of the Parliamentary Standing Committee on Finance during an interaction with them on the issue of distributing banking licences to corporate houses, as according to sources in the know, he was virtually on the “backfoot” explaining the rationale behind the decision.
A major chunk of Members of Parliament (MPs) sought to know from him that till date not a single application has been received by the RBI seeking licence for setting up a bank, then how viable does the move seem. The last date for sending applications is July 1, 2013 while the RBI had announced the guidelines on February 22, 2013.
Sources told The Pioneer that a prevalent mood among the panel members was that since 2008 when the global slowdown first hit the world, several leading financial institutions starting with lehmann Brothers, had crashed. In this light, the panel wanted to know from Subbarao, how feasible would the decision to allow more banks prove, when banks all around were shutting down their shutters.
Citing similar instances when the Government had framed such guidelines in 1991 and again in 2001 (and had distributed licences to private companies in 2004) , the panel said that despite these measures introduced earlier, banks set up on such principles had flopped, so what was the need to go again for such a decision.
In addition to this, the MPs also quizzed the RBI Governor on how will corporates justify their roles as bankers, since they have no experience of the banking sector. Also while the Government had cited financial inclusion as one of the reason behind initiating the move, the panel asked that with the entry of corporates, will the original motive survive as it would only intensify competition between public sector banks and the newly set up private banks.
Further the Standing Committee asked Subbarao as to how the RBI will try and prevent corporates from diverting money to banks owned floated by them, which could lead to “crony capitalism”. Sources added that the panel even raised doubts on various aspects of the guidelines framed by the RBI to allow corporate houses to enter the banking sector.
Sources said that Subbarao, who even gave a presentation to the MPs on the RBI's decision, has been asked by the Parliamentary Standing Committee on Finance which is led by senior BJP leader Yashwant Sinha, to come more prepared with the queries raised by them, when the panel meets again later this month, as his responses apparently did not cut any ice with them.As per the guidelines issued by the RBI, the minimum paid-up capital for setting up a bank has been pegged at Rs500 crore. The cap on the foreign investment, including FDI/FII and NRI, has been set at 49 per cent.