New bank licence rules may apply to existing banks: Sources

Finance Ministry sources told CNCB-TV18 that it does not expect any movement on issuing new bank licenses given the atmosphere or distrust about any license given by the government to corporate. However, the finance ministry is checking with RBI whether some of the liberal elements in the new rules can be made applicable to existing bank, for instance, allowing business houses more shareholding in banks, reports Latha Venkatesh.

FinMin sources said why not apply the more liberal new bank rules to the existing banks. RBI said that it hasn’t received any written communication to that effect. This was checked a little while ago, I don’t know if they have now received any communication.

But they were pointing to several anomalies in this suggestion. One is that in any case RBI does not want to move on bank licenses till the banking regulation act is amended and at the moment parliament is not doing anything about any act, so it’s a long haul before that gets amended. Firstly all those amendments should pass muster in parliament. RBI is seeking huge powers in that act. It is actually asking to have the power to look at the books of any group entity of a group, which has a banking license. For instance if there is a Tata Capital which has a banking license, they will look at Tata steel, Tata Sponge. Just anything even if they are completely unconnected to that company for the simple reason that they want the power to know whether there is some kind of directed lending or sympathetic lending to the vendors, suppliers, customers of group companies.

It also points out about applying the new rules to the existing banks. One of the examples pointed out by the ministry source was that why not allow industrial groups to allow them to buy shares upto 15 or 20% shares in the existing banks. Now what RBI is pointing out that under the new rules promoters are allowed upto 15%, not any group.

So it doesn’t quite gel allowing the new bank rules to be applicable to the current situation because promoters here are any way for instance Kotak or IndusInd have more than 15% they are yet to come down to that level. So exactly how is the applicability of the new rules to the existing situation going to change the situation. There seems to be a lot of confusion on that.

According to the RBI sources cannot change on the ground, so what do we have as a key takeaway new bank licenses are not going to be issued. Industrial groups who are aspiring to come into this space will have to postpone their plan if they had any, if they already started recruiting they have to keep those ambitions at bay whether it is Aditya Birla Money or Reliance Capital or Tata Capital or whoever had ambitions will have to keep their ambitions at bay.