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RBI Grants 'in-principle' Approval to 2 New Banks
Apr 04, 2014

The Reserve Bank of India (RBI) on April 2 granted in-principle approvals to Mumbai-based infrastructure lender IDFC and Kolkata-based micro-finance Bandhan Financial Services for new bank licences. The RBI will also consider the application of India Post, but the central bank said it would done separately in consultation with the government.

There were 25 companies in the running.  Public sector unit IFCI and private players such as Anil Ambani group and Aditya Birla group were among the applicants. Bajaj Finance, Muthoot Finance, Religare Enterprises and Shriram Capital had also applied.

The approval comes a day after the Election Commission (EC) cleared the decks for RBI to announce approvals for new banking licences. The RBI had sought permission of the EC before announcing the awardees, as the model code of conduct is in place in the run up to the elections.

The "in-principle" approval granted will be valid for a period of 18 months during which the applicants have to comply with the requirements under the banking licence guidelines and fulfil the other conditions as may be stipulated by the RBI.

On being satisfied that the applicants have complied with the requisite conditions laid down by the RBI as part of “in-principle” approval, they would be considered for grant of a licence for commencement of banking business under Section 22(1) of the Banking Regulation Act, 1949. Until a regular licence is issued, the applicants would be barred from doing banking business.

In February, the Bimal Jalan panel, which scrutinized applications for new bank licences, submitted its report to RBI.

The RBI said that it assessed the quantitative and qualitative aspects of the applicants as per the criteria laid down in the guidelines. This included analysis of the financial statements of the key entities in the group, 10-year track record of running their businesses, proposed business model for the bank as well as the applicants’ demonstrated capabilities for running a bank, plan for expanding inclusion, and culture of compliance and integrity demonstrated by the applicant in its past activities. Based on all this, the RBI took a view of the fit and proper status of the applicant.

Going forward, the RBI intends to use the learning from this licensing exercise to revise the guidelines appropriately and move to give licences more regularly. It will also frame categories of differentiated bank licences, building on its prior discussion paper, and this will allow a wider pool of entrants into banking. The RBI believes that some of those entities which did not qualify in this round for a full-fledged banking licence could well apply in future rounds or could apply for differentiated licences under the proposed framework.

This would be the first time in a decade that new banking licences are handed out, since the formation of Yes Bank in 2004.


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