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Jan 16, 2013, 01.47 PM IST | Source: CNBC-TV18

FinMin finalises norms for new bank licenses, sends to RBI

The finance ministry has finalised norms for new bank licenses and has sent its comments to the Reserve Bank of India (RBI). CNBC-TV18's Siddharth Zarabi reports this exclusive.

Siddharth Zarabi

Economic Editor, CNBC-TV18

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The finance ministry has finalised norms for new bank licenses and has sent its comments to the Reserve Bank of India (RBI). CNBC-TV18's Siddharth Zarabi reports this exclusive.

Sources say the finance ministry has asked the RBI to delete the clause prohibiting realty and stock broking firm promoters from applying for bank licence. The ministry says that when there is a complete ban on taking exposure by a new bank to the promoters and promoter group entities or any individuals associated with that then there is no need to keep this restriction on the businesses of the promoter group and that this clause should be deleted.

Also read: RBI's concerns on stability, systemic risks is valid, says E&Y

While it should not interpret this in any manner that the finance ministry is suggesting that a real estate company or stock brokers or traders be allowed to get into the banking business, the point to note is that the ministry is saying that this restriction is not needed given that there is a corresponding proposed legislation, which will ban a new bank from doing any sort of investments or relation with the promoter group or any of its associate enterprises and individuals.

This clause has also to be read with one more important finance ministry amendment that it has proposed with respect to the RBI draft guideline. The RBI draft guideline had a clause—clause 2A sub-clause 1—that spoke about non-operative holding company. The finance ministry says the rule should be amended with the addition of the word non-operating financial holding company (NOHC). The finance ministry feels this is necessary and cites the recommendations of a working group on the introduction of financial holding companies in India, which was headed by Shamila Gopinath, deputy governor RBI.

Also, the ministry has asked the RBI to clearly define promoter group entities to signify and point out which entities are those or which will be treated as those where promoters have substantial control or ownership. The determination that the finance ministry is trying to make is that in a corporate structure where there are arms-length companies, where there are indirect forms of equity and ownership which are parallely recognized by our existing laws, that clarity be provided on this aspect.

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