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Rediff News  All News  » Business » IDFC, Bandhan get bank licences, corporate houses left out

IDFC, Bandhan get bank licences, corporate houses left out

Last updated on: April 02, 2014 22:16 IST

Image: Chandra Shekhar Ghosh, Founder & Mentor, Bandhan felicitating Shikha Sharma, Managing Director & CEO, Axis Bank on the inaugural ceremony of Axis Bank Bandhan Holistic Assistance (ABHA) at Baruipur, West Bengal.
Photographs: Courtesy, Bandhan

Ending days of suspense, the Reserve Bank on Wednesday granted banking licences to infrastructure financing firm IDFC and microfinance institution Bandhan from among 25 applicants that included corporate heavyweights ADAG Group, Aditya Birla Group and Bajaj Group.

The RBI agreed to consider the application of India Post in consultation with the government and advised other applicants to apply afresh after the central bank comes out with new guidelines on granting licences 'on tap'.

IDFC, Bandhan Financial get license to start new banks

Image: Rajiv Lall, Executive Chairman, IDFC
Photographs: Reuters

"The in-principle approval granted (to the two entities) will be valid for a period of 18 months during which the applicants have to comply with the requirements under the guidelines and fulfill the other conditions as may be stipulated by the RBI," the central bank said in a statement.

The bank licences were awarded a day after the Election Commission granted approval to the to go ahead with the process.

"This is a very heartening development. After a long time it has happened. It will pave the way for more entities to come forward and expand the banking network. It augurs well for the economy and banking sector," Financial Services Secretary G S Sandhu told PTI.

According to IDFC Chairman Rajiv Lall, "We prepared for the hard work, which begins from now. Our application was for a universal license and we are going to proceed with having a universal bank."

IDFC, Bandhan Financial get license to start new banks

Image: Beth A Payne, US Consul General being felicitated by C S Ghosh, CMD at the head office of Bandhan.
Photographs: Courtesy, Bandhan

Bandhan Financial Services Private Ltd, the first microfinance firm to get a bank licence, said this is a recognition of the microfinance sector and their hard work to reach unbanked areas and provide financial services.

"We will be able to offer full-fledged banking services to the poor people," Bandhan Chairman Chandra Shekhar Ghosh said. 

"What I understand is that they (IDFC, Bandhan) will be given Letter of Intent (LoI). They will be given time to fulfil the criteria. Eighteen months will be given to these entities," Sandhu said.

IDFC, Bandhan Financial get license to start new banks

Photographs: Reuters

"On being satisfied that the applicants have complied with the requisite conditions laid down by the RBI as part of the "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," the RBI said.

The RBI originally received 27 applications in July 2013, but Tata Sons and Videocon Group withdrew from the race, leaving 25 contenders.

IDFC, Bandhan Financial get license to start new banks

Image: day Kotak, Managing Director, Kotak Mahindra Bank.
Photographs: Courtesy, Kotak Mahindra Bank.

The entities that did not succeed in getting bank licences include Aditya Birla Nuvo, Bajaj Finserv, Reliance Capital, LIC Housing Finance, L&T Finance, Indiabulls Housing Finance, Edelweiss, IFCI, India Infoline, J M Financial, Muthoot Finance, Religare, Shriram Capital and SREI Infrastructure.

At present, there are 27 public sector banks and 22 private sector banks in the country.

The RBI has issued bank licences after a gap of a decade. It last awarded permits to Kotak Mahindra Bank and Yes Bank in 2003-04. 


IDFC, Bandhan Financial get license to start new banks

Photographs: Reuters

The RBI said IDFC and Bandhan were recommended as suitable for grant of "in-principle" approval by the High-Level Advisory Committee (HLAC) headed by former Governor Bimal Jalan.

The HLAC had recommended that in the case of the Department of Posts, which had applied for a licence, "it would be desirable for the RBI to consider the application separately in consultation with the government."

While permitting the two applicants, the RBI said it "believes that some of those entities who 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."

The RBI said its approach in this round of bank licences could well be categorised as conservative.

"At a time when there is public concern about governance, and when it comes to licences for entities that are intimately trusted by the Indian public, this may well be the most appropriate stance," it said.



IDFC, Bandhan Financial get license to start new banks

Photographs: Reuters

The central bank said it intends to use the learning from this exercise to "revise the guidelines appropriately" and move to give licences more regularly, virtually "on tap."

It will also frame categories of differentiated bank licences and allow a wider pool of entrants into banking.

"I am sure they are working on a set of guidelines and eligibility criteria for "on-tap" licences. Once they are issued, licences can be given to the eligible parties as and when they apply," Sandhu said.

"We are not disappointed as this is only the first set of licences and the RBI has promised that going forward, it will be on-tap," said Nirmal Jain, founder and Chairman of India Infoline.

Since it has also been promised that those who lost out can apply again, the company will definitely evaluate the new norms and decide on applying again, Jain told PTI.


IDFC, Bandhan Financial get license to start new banks

Photographs: Reuters

In the past 20 years, the RBI has licensed 12 banks in the private sector in two phases. Ten banks were licensed on the basis of guidelines issued in January 1993.

The licencing process started when then Finance Minister Pranab Mukherjee announced in the budget speech of 2010-11 that there was a need to extend the geographic coverage of banks and improve access to banking services and that the RBI was considering giving some additional banking licences to private sector players.

Subsequently, the RBI issued guidelines for licensing of new banks on February 22 last year and issued clarifications in June.

Following the guidelines, the HLAC was set up in October under chairmanship of Jalan to screen applications and recommend licences.

Other members of the committee were former RBI Deputy Governor Usha Thorat, former Securities and Exchange Board of India Chairman C B Bhave and Nachiket M Mor, Director of the Central Board of Directors of the RBI. 

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