Experts cheer RBI's paper on new bank license

Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » RELATED NEWS RBI plans limited new bank licences

The Reserve Bank of India (RBI) today released its long awaited discussion paper on what basis it should issue new banking licenses. The big surprise in the paper is a fairly open and positive discussion on allowing corporate houses into banking, something the RBI has been opposed to.

The other areas the RBI has thrown up for discussion are - what should be the minimum capital requirements, and promoter contributions, what should be the caps on promoter shareholding, how much foreign equity should be allowed, should NBFCs be allowed to convert into banks and finally what should be the business model for new banks.

Experts have given a thumbs up to RBIs' discussion paper on new bank licenses. Ashvin Parekh, Partner - National Leader, Global Financial Services, Ernst & Young appreciates RBI's move by saying, "Very commendable, I should say. Even the threshold capital recommendations in the discussion paper are in keeping with the industrial expectations. So, I would say overall constructive and positive."

He added that the banking system requires substantial amount of capital and RBI's move will give an opportunity to NBFCs to participate.

Calling it a forward looking step, Sachindra Nath, Group CEO, Religare says that the discussion paper has opened up lots of apprehension that the industry had. Nath adds, "So, these are very path breaking step and would change the banking industry in a very different manner. The landscape of the banking can change if this would finally come true."

According to Atul Kumar Rai, CEO and MD, IFCI the discussion paper will take the discourse forward in terms of looking at all kinds of possibilities which maybe considered for allowing new banking licenses. "Not just institutional players who might have given better kind of results so far in terms of making a success of new banking licenses. That is a sobering thought for us that we cannot take it for granted," Rai added further.

Here is the verbatim transcript of Atul Kumar Rai's comments on CNBC-Tv18. Also watch the accompanying video.

Q: One of the suggestions that the RBI has made in recounting its past experience is that the best experience has been when institutions have floated banks for instance IDBI, ICICI and UTI. It comes with a positive bias for institutions floating bank, financial institutions widely held. Do you think therefore straightaway you will be applying for a banking license and will the 1,000 crore minimum equity be a daunting effort?