In a stern message to the Reserve Bank of India ( RBI) on the contentious topic of issuing new bank licences, Finance Minister P Chidambaram made it clear that RBI has the powers to issue new licences and expressed the hope it will take the process forward " appreciating" government's position. " Whatever powers, whatever authority there was in 1993, remains on the law books today. In fact there are more power and authority now in place." He was speaking at the launch of a book ' A Bank for the Buck' on the history of HDFC Bank by financial journalist Tamal Bandyopadhyay in Mumbai on Saturday. " I am keen that there should be more banks. That is the policy of this government. The policy was announced by my predecessor in his budget speech in a year and half ago. This government's intention is to urge the RBI to quickly finalise the guidelines." His remarks assume significance in view of the reluctance of RBI to move ahead with the policy of granting new bank licences in the absence of changes in the Banking Regulation Act, which is awaiting approval of the Parliament.........
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Copied below is a letter addressed to Business Standard when the RBI released the discussion paper on new banks in 2010. The fears expressed in the concluding sentences are coming true. FM is playing into the hands of certain pressure groups:
The discussion paper on new bank licences released by RBI may, in the coming days, bring to fore the problems and challenges faced by financial sector as the issues raised in the paper go much beyond the government’s intention to give a greater role for private sector in banking to promote financial inclusion and reduce government’s financial commitments for running banks. It is quite natural that as a regulatory body responsible for the health of the financial sector, RBI’s concerns go farther from just the net worth of the promoter or his professional capability to run a bank. RBI’s intention to regularize and ratify the parallel banks which can conform to regulatory norms and rehabilitate some RRBs which may have manpower and infrastructure in place but may be finding it difficult to perform for want of leadership as also the central bank’s desire to keep the business of banking trustworthy is evident from the issues raised in the discussion paper. The present scenario is partly the result of GOI and RBI keeping the banking reforms in the backburner after allowing some banks in the private sector. At this delayed hour at least, a total view of banking needs and institutional infrastructure for meeting them may have to be taken before implementing short term solutions. If this is not done corporates at the national level and small borrowers at the ground level will continue to bypass the banking system.
M G Warrier
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