RBI to move fast to allow more private players in banking sector

24 November, 2012

If a customer is going to get more choice on any product or services offered, such a move should receive support. Recently, Government of India (GOI) has asked the Reserve Bank of India (RBI) to speed up with resolving pending issues governing new bank licences which could be issues to more and more private players.

IT SEEMS the RBI is seized of the matter pretty well but going slow on this issue. As per a press report, the RBI had raised certain issues with the Government for resolving and these are as follows :

- RBI had been issued draft guidelines for issuing new bank licences way back in August, 2011.

- RBI had then raised the issue that the process of inviting applications for setting up new banks in the private sector would be initiated after amendments in the Banking Regulations Act, 1949. RBI, during various meetings, had said that three amendments to the Banking Regulations Act 1949 were required to strengthen the regulatory powers of the central bank.

It proposed -

(a) RBI should be empowered by inserting a new section 12B in the Banking Regulation Act 1949 so that any acquisition of 5% or more of the share capital of bank would require its approval.
(b) The New Act should empower RBI to superse the board of directors of a banking company and appoint an administrator during the period of suppression.
(c) Further, the New Act should empower RBI to call for information or inspection of any associate enterprise of a banking company.

GOI's contention is as follows with regard to the above three issues :

(a) In so far as prior approval of RBI for acquisition of 5% or more of shares of a bank is concerned, currently RBI guidelines fo acknwledgement of transfer/allotment of shares in private sector banks, dated Feb3, 2004, reqire that no transfer takes place of any acquisition to a level of 5% or more...unless there is a prior acknowledgement of RBI. Hence this issue can be taken as resolved as the power is already there with the RBI.

(b) On the issue of supersession, the letter notes that "in the draft guidelines that promotors or promotor groups will be permitterd to set up a new bank only through a wholly owned non-operative holding company which will hold the bank as well as other financial services companies regulated by RBI or other financial services regulators". It adds that Section 36AA andSection 36AB of the Banking Regulation Act 1949 empower RBI to replace members of the board or any officer of a banking company and to appoint additional directors. Hence, this issue can also be taken as resolved as the power is already there with the RBI.

(c) On the issue of inspection and supervision powers on the associate enterprise of a banking company, there is a proposal in the new bill that RBI wll exercise this power jointly with other regulators. A draft MOU for foing cooperative in the field of supervision alongwith four other big regulators including RBI, SEBI, IRDA and PFRDA - under the aegis of the Inter Regulatory forum for Financial Conglomerate Supervision (a forum under Financial Stability and Development Council). GOI now proposes to advise SEBI, IRDA and PFRDA to finalize the draft with RBI to sign the MOU through whih the issue of joint supervision of associate companies of bans could be sorted out.

Hoping the above issues raised in (c) as above do get resolved soon to enable RBI to finalize guidelines and initiate process of inviting applications for more private players in the banking field at the earliest.