Editorials, GS-3, Indian Economy, Uncategorized

On-tap bank licences: 5 questions that linger

The Hindu

Issue

Questions being asked related to ‘on-tap’ bank licenses.

Q.1) External committee needed?

  • The RBI had said it would form a standing external advisory committee (SEAC) that will vet the applications after the initial screening is done by central bank staffers.
  • The committee is to have a three-year term and will comprise eminent personalities from the banking, financial and other relevant sectors.
  • The RBI grants licences to primary dealers, non-banking finance companies and even to foreign banks to operate in India, without any external help. So why do they need a committee only for domestic bank licences?
  • Now that on-tap licensing has been proposed, the RBI should set up a separate department to look into only licensing issues

Q.2) No timeframe?

  • The central bank has tried to make the process on-tap licensing process transparent.
  • For example, for the first time, it has allowed unsuccessful candidates to appeal to the central board of the RBI.
  • Unsuccessful candidates can also apply again, after three years from the date of rejection.
  • While the RBI has said it will communicate its decision to the unsuccessful candidates as well, it has not specified any timeframe by which a licence will be awarded or declined.

Q.3) Reasons for rejection?

  • Applicants from past rounds feel that the central bank, known to be a conservative regulator, seldom communicates the cause for rejection.
  • There is a demand from bank aspirants, in order to ensure transparency, that the central bank should make public reasons for rejecting bank licence applications.

Q.4) Not to all eligible?

  • In the draft norms, the RBI had said entities or individual promoters would be found be fit and proper if they had 10 years of banking experience or running their respective businesses, sound credentials and integrity, sound financials, and diversified shareholding pattern among promoting entities.
  • Prospective applicants said if the objective is to allow financial services to reach the remotest part of the country, adding only a few banks will not solve the problem.

Q.5) Why not business houses?

  • It is clear from the guidelines that the central bank wants entities that are predominantly in financial services.
  • The big change in guidelines comes in the form of excluding large industrial houses from being promoters, and cap their shareholding to 10 per cent

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