Parl passes banking bill, paves way for setting up more banks

Parliament Thursday paved the way for corporate houses to enter the banking sector by approving the banking bill, a key reform legislation pending for long.

Updated: Dec 21, 2012, 08:46 AM IST

New Delhi: Decks were cleared on Thursday for entry of corporates into the banking sector with Parliament approving a long-pending Banking Laws Amendment Bill that would give RBI more regulatory powers.

"I would expect that the Reserve Bank finalises the guidelines as early as possible and then begins to invite applications and then continues the process," Finance Minister P Chidambaram told reporters after the approval of the Banking Laws (Amendment) Bill, 2012 by the Rajya Sabha.

The Lok Sabha had approved the Bill earlier after the government dropped the controversial clause concerning allowing banks to trade in commodity futures.

With the passage of the Bill, corporate houses like Tatas, Reliance and also entities in the public sector would be eligible to obtain licences to set up banks.

"There is a need for more banks and I hope that the Reserve Bank will act with speed in the matter," Chidambaram said.

Besides Banking Bill, the Rajya Sabha also approved the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2012.

On the reforms in insurance and pension sectors, Chidambaram expressed hope the bills related to them would be taken up in the Budget session.

"I have told the two leaders of Opposition that once the banking bill is passed, I will get back to them for another round of discussion on insurance bill. There is only clause on which there is some difference of opinion," the Minister said.

RBI had already issued the draft guidelines in this regard and had assured the government that it would initiate the process of issuing new bank licenses once the Banking Laws Amendment Bill is passed by Parliament.

RBI, which regulates the banking sector, has not issued any bank licences during the last one decade as it wanted to study the function of new banks which came up after 1993.

RBI's latest guidelines, which were issues in 2001, had said that the central bank would consider giving more bank licences after a review of the working of the banking sector, which was going through a phase of consolidation.

Over the last two decades, the RBI licensed 12 banks in the private sector in two phases -- 10 in 1993 and two later. There are 53 commercial banks in the country which include 26 public sector banks and eight foreign banks.

RBI, Chidambaram said, would follow "fit and proper" criteria to issue bank licences.

"Government has no bias in favour of or against anyone. A fit and proper person can get a licence and we have left it to the RBI to frame guidelines. And it is for the RBI to ultimately decide who will get a licence," the Minister added.

He was responding to a question on concerns expressed by certain corporate houses that some entities might be left out from the process.

Chidambaram said the amendment was not intended to give banking licences to big corporate houses alone, but also to allow eligible public sector entities to enter the sector.

India needs two-three world-sized banks, the Minister said, adding "China has three among the world's top 20. We have none. We need more banks."

He further said: "Banks have opened 6,489 branches in 2011-12 alone, that is around 18-19 per day. We don't have the capacity to open more branch. We need banks," he said.

Referring to today's strike by bank unions against reforms, Chidambaram said he could only request the bank employees to refrain from such activities.

"I don't know why they should go on strike. There is no longer greater public support for this (kind of) strike...I think any matter can be talked out. We are open to talks. Strike is not desirable," Chidambaram said pointing out that strikes have become "less and less frequent."