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Rediff.com  » Business » Poll panel raises red flag on bank licence timing

Poll panel raises red flag on bank licence timing

March 20, 2014 08:50 IST

RBIThe Election Commission has expressed its reservations on the timing of the Reserve Bank of India’s proposal to grant new banking licences to two of the 25 applicants.

“There are certain issues for which we need more clarity and are writing to the RBI,” an EC official said on the condition of anonymity, adding the poll panel would take a decision by the end of this month.

EC received the RBI proposal in the first week of this month, soon after the model code of conduct came into force on March 5.

“The RBI had asked for our permission to clear two banking licences.

"The reason it cited was that the government had already announced giving new bank licences before the elections were notified.

"The central bank also said the relevant banking rules were notified way in advance,” said another high-ranking EC official.

The official didn’t want to be named because of the sensitivity of the matter.

The official said if everything was planned and announced in advance, there was no reason why the licences could not have been allotted earlier.

“Why did the RBI have to wait for the electioneering process to begin?

"We are also considering whether this can wait for another two months, by when the election results would be out,” he added.

Another area of concern is whether the allotment of bank licences at this stage would give an undue electoral benefit to the Congress-led United Progressive Alliance government in the elections.

“RBI is an independent body and should not be seen as taking sides,” the official said.

The final decision will be taken by the three-member Election Commission, headed by Chief Election Commissioner V S Sampath.

The other two commissioners are H S Brahma and Nasim Zaidi.

RBI Governor Raghuram Rajan had said at a media conference earlier this month that he would certainly want the EC to be okay with issuance of licences at this stage, though the process had taken place over the past year.

Rajan had also said the RBI would be able to issue banking licences in the next few weeks of getting the go-ahead.

An expert committee under former RBI governor Bimal Jalan had given its final recommendations to the central bank after scrutinising all the 25 applications.

The names of IDFC, a prominent non-banking financial company and a microfinance institution have been doing the rounds as favourites to get the licences, though this could not be verified.

RBI is reported to be playing safe this time and might not give licences to industrial houses, against what was the government’s intention at the time of announcing more bank licences would be issued.

The previous time the RBI issued banking licences was in 2003-04, when it gave permits to two players.

The stated objective of giving licences this time is financial inclusion, while in the past two rounds the RBI had wanted introduction of greater competition in the banking sector, then dominated by government-owned banks.

ELECTION SPANNER

  • The Election Commission received RBI’s proposal to issue two bank licences in the first week of March
  • This was soon after the model code of conduct for the coming general elections came into force
  • The issue raises concerns as the Congress-led UPA govt, which had announced giving new permits, could get an undue electoral benefit
  • The final decision on the issue will be taken by the three-member Election Commission, headed by CEC V S Sampath

Image: Reserve Bank of India

Sahil Makkar in New Delhi
Source: