Parliament panel opposes bank licences to industrial groups
It will be more in the fitness of things to keep industry and banking separate, the committee said in its report tabled in Lok Sabha----MINT
New Delhi: The parliamentary standing committee on finance has recommended that corporate houses should not be given bank licences by the Reserve Bank of India (RBI).
The central bank has constituted a committee under former Reserve Bank governor Bimal Jalan to scrutinize applications from aspirants and is expected to start issuing licences by January. Twenty-six aspirants had applied for new bank licences including Tata Sons Ltd, Aditya Birla Nuvo Ltd, Reliance Capital Ltd, L&T Finance Holdings Ltd, and Bajaj Finserv Ltd.
Tata Sons withdrew its application last month.
“Banking being a highly leveraged business involving public money and public welfare, the Committee are of the considered opinion that it will be more in the fitness of things to keep industry and banking separate,” the committee said in its report tabled on Friday in Lok Sabha.
“The Committee is not sure whether the “safeguards” put in place by RBI such as “fit and proper” criteria, “exposure norms” etc. would be effective enough to prevent banks promoted by industrial houses from “cosying up” to their industrial-owners,” the report said.
The RBI, through amendments to Banking Regulation Act, 1949, has got powers to call for information from the associate companies of the bank’s promoter group and inspect their books of account. Through these powers, the central bank hopes that it will ensure that banks are adequately ringfenced from the promoter group.
The standing committee also questioned the rationale behind the view that more banks will help in achieving greater financial inclusion. It pointed out that as of March 2013, only 17% of the total branches of private sector banks was in rural areas.
“Given such a background, the Committee are apprehensive that industrial/business houses may not be geared to achieve the national objectives of financial inclusion, priority sector lending etc,” it said.
The committee said the RBI should ensure that for every three branches opened in urban areas, there is one in a rural area.
The committee has also recommend that the minimum capital requirement for the new banks be increased to Rs.1,000 crore from the Rs.500 crore stipulated at present to weed out less serious aspirants and to ensure that capital is not a constraint.
“Considering the expanse of geographical India, the vast unbanked population, the costs of core banking technology, real estate and manpower services, the committee believes that starting a bank with aroundRs.500 crore as capital will limit the operations of the bank and render them vulnerable to under-achieve its mandate,” the committee said.
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