RBI says legal backing must for issuing new bank licences

RBI says legal backing must for issuing new bank licences Mumbai: Reserve Bank Governor D Subbarao Tuesday virtually ruled out issuing new bank licences without it getting adequate powers to do so through legislation.

Recalling his conversation with Finance Minister P Chidmabaram the latter's visit to the financial capital early this month, Subbarao said Chidambaram had asked RBI "whether it (new licences) can be done without amending the Banking Regulation Act".

"We believed, we believe and we (still) believe that we need these powers to move forward," he said.

Subbarao said the RBI's demands include authorisation for superseding a bank's board and powers to authorise acquisition of shares beyond 5 percent, among others.

The Governor also ruled out taking short-cuts as has been suggested in the media that RBI could speed up the much-delayed process by using the provisions of the Companies Act and not wait for the changes in the Banking Regulations Act.

"An amendment to the Banking Regulation Act is pending (in Parliament) for giving us the necessary powers, authority and dispensation to deal with corporates entering the banking sector," he said

To a query whether applications of NBFCs could be expedited as they are now being regulated by the central bank, Subbarao said, "Our position is that it is best to open up the process for all potential applicants at the same time."

He was answering questions from the media at the customary post-policy press meet here this evening.

Asked about recent media reports which said the RBI could cut short the process by issuing bank licences by administrative route (using the powers of the Companies Act) rather than waiting for the politically difficult task of passing the Banking Regulation Act, he said: "We are yet to receive any formal communication on that."

The RBI, which last issued new licences way back in 2002, has been toying with the idea of allowing more players into the fray for over three years now.

It issued the final guidelines in August 2011 for entry of new banks, including those floated by corporates, but is waiting for the necessary legal powers before it proceeds further.

PTI