Raising doubts behind the motive of corporate entities seeking banking licences, a Parliamentary panel has expressed apprehensions that private banks set up by such companies may deploy their funds to extend undue favours to their industrial owners, and therefore suggested to the Reserve Bank of India (RBI) that it should refrain from giving bank licences to corporates as the banking business is highly leveraged and involves public money.
The Parliamentary Standing Committee on Finance led by BJP leader Yashwant Sinha on Monday submitted a report in Parliament on ‘Policy on New licences in the Banking Sector’, where it advocated the RBI to keep industry and banking separate.
“Banking being a highly leveraged business involving public money and public welfare, the Committee are of the considered opinion that it will be more in the fitness of things to keep industry and banking separate. The Committee, therefore desire the Government/Reserve Bank of India to review the licencing guidelines accordingly,” the report has recommended.
About two dozens, including corporate houses, are in the fray to obtain bank licenses, which the RBI proposes to grant in the first quarter of 2014. The committee has expressed apprehension that management of private banks may deploy their funds to extend undue favour to own industrial owners, as it was noticed in the pre- nationalised era.
“... The Committee are apprehensive that industrial/ business houses may not be geared to achieve the national objectives of financial inclusion, priority sector lending, etc,” the report said. Moreover the committee noted that as on March 2013, out of 15,630 existing private sector bank branches, only 2,699 branches are located in the rural areas i.e. to say only about 17 per cent of the total branches are in the rural areas. “Given such a background, the Committee are apprehensive that industrial/business houses may not be geared to achieve the national objectives of financial inclusion, priority sector lending etc”, it added.
The 32-member panel further said that the ‘fit and proper’ criteria to be used by the RBI to grant licenses “is too ambiguous” and too much scope has been left for subjective discretion of RBI. Having such subjective, ambiguous and open-ended criteria, it said, may leave the doors open for arbitrariness and invite charges of favouritism.
“The Committee, would therefore, suggest that a more precise, a coherent and objective yardstick/criteria may be formulated to assess the credentials of divergent entities from different sectors in a uniform manner,” the report said. To ensure fair-play and justice in the licensing process, it favoured a suitable mechanism to enable aggrieved applicants to seek review of decisions, the panel noted.
Besides, it has recommended raising the minimum capital requirement for raising the minimum capital requirement for the new banks to Rs 1,000 crore from the present Rs 500 crore. On timeline, the Committee recommended the RBI to execute the process of screening and evaluation of applications in a well-defined and transparent manner without leaving any room for speculation or conjecture. The RBI has neither given time limit by which the licences are to be issued nor the number of licenses.