Feb 01, 2013, 09.05 PM IST
DK Mittal, secretary of financial services, GoI, shares his view on banking regulation amendment bill. He says that the RBI being the regulator will be the notifying authority, and they will issue the guidelines for the banking regulation amendment bill very shortly maybe in next two weeks time.
On asking the RBI to drop the condition that restricts promoters with an exposure to real estate and stock broking, he says that India is not a capital surplus country. If we are asking to put in Rs 500 crore, then how many entities would be able pull in Rs 500 crore.
On the government's Rs 30,000 crore disinvesment target, Mittal opines he is confident of the Government meeting the target. "I can say very firmly that the target of Rs 30,000 crore shall be met. With this target being met, the Budget promise which has been made before the parliament should be complied with," he adds.
Below is the edited transcript of his interview to CNBC-TV18.
Q: You have been in the finance ministry for over one and a half years now. Your tenure has been marked by key milestones. Eight key legislations have seen passage including the banking regulation amendment bill. The bill sets up the regulatory architecture for banking licenses. You discuss with the RBI, when do we see the issue of new banking licenses and at what stage are these discussions?
A: First, the guidelines will be issued for inviting applications for new licenses. We expect and as finance minister mentioned about two weeks time.
Consultation between the government and the Reserve Bank of India (RBI) are complete and we are together in terms of the proposed guidelines. So, RBI being the regulator will be the notifying authority, and they will issue the guidelines very shortly maybe in next two weeks time maximum. After that the whole process will start.
Q: You have asked the RBI to drop the condition that restricts promoters with an exposure to real estate and stock broking. So, effectively allowing them to get banking licenses and this comes at a time when the International Monetary Fund (IMF), global economist from Joseph Stiglitz to YV Reddy in India have highlighted the fact that industrial houses should not be given banking licenses because that is the prudent policy. Aren’t you going to significantly increase the risk to the financial system by allowing such companies to get banking licenses?
A: The regulatory framework of the western countries is different from our framework.. Secondly, it is one thing to say a class of persons being ab initio ineligible and it is a different thing to say ab initio everybody is eligible. I will apply fit and proper criteria which is the domain of the RBI. Thirdly, we are not a very capital surplus country. If we are asking to put in Rs 500 crore, then how many entities would be able pull in Rs 500 crore. After seeing this limitation it was agreed by the RBI and the government that there will be an ab initio don’t apply filter, but after that one can apply filter by looking at the background check and whatever parameter one wants to apply.
Q: In the first draft guidelines the RBI had put a filter of 10 percent of exposure to real estate. So, is that filter now going to be removed?
A: No I will not reveal anything on the guidelines. However, I am saying a basic principle, what has been agreed to and which Finance Minister (FM) has said that don’t make any class of entities ab initio ineligible. After that you apply fit and proper criteria and for that you can evolve parameters.
Q: What type of criteria?
A: That Reserve Bank of India (RBI) will have to evolve.
Q: So effectively you will allow tem but on the basis of the strength of their balance sheets, is that what you are saying?
A: No, they will have to see whether they are fit and proper. That is a phrase which is a very standard phrase in the banking sector and also in all the regulators. So, that criteria will have to evolve.
Q: Has the RBI got back to you on this? What is their opinion on this?
A: I will only say that we have him in close consultation on this issue and we are on the same page. On what is the same page that RBI will have to come finally, I will not reveal that out.
Q: But can I take this that finance ministry is keen that corporate houses be given banking licenses and exposure to real estate and stock broking is not a problem?
A: No, what FM has said I am only saying that much that why should you make anybody ab initio ineligible? It is a question of you applying filters. Suppose you have person better than anybody then you can grant them licenses; now that is a filter to be applied by the regulator.
Q: You have spoken about minimum capital requirements, you have also spoken earlier about the need to have segments of banks so local banks, national banks, international banks with different capital requirements because if you ultimately have to push financial inclusion you need the NBFCs to banking licenses. So, is there going to be such segmentation in the final norms?
A: That also we have suggested to RBI that we should have a policy framework. We have different committees which have recommended this and we requested RBI that kindly look at it and also frame a policy framework. Our country because of different agro-climatic zones, because of different language, different cultures, we need to have local banks, we need to have regional banks and we need to have national and also global banks. So, we requested RBI that please prepare a framework and you notify it out. So, RBI is working on that.
Q: Let me talk to you now about equity infusion. What is the equity infusion that will be required in public sector banks to comply with the BASEL III norms and you had proposed the idea of a financial holing company when does that actually take shape?
A: Public sector bank will need something like Rs 2 lakh crore over next 6-8 years. Financial holding company idea has been discussed with RBI and it is in the direction in which RBI in general is moving for a financial holding company for banking sector. So, it is in line with that and it is in synchronisation with that.
I think the idea has been finally accepted by everybody and now it is having a legal vetting and after that it will need approval of the cabinet and then the parliament.
Q: The RBI in fact had done a working paper on this in terms of the contours of the company is the entire government equity in public sector banks going to be shifted to this holding company?
A: No, I am afraid I can not reveal that at this stage that you will have to see when it is approved by the cabinet. At this stage it is in consultation with law ministry, we will have to go to cabinet and take final approval.
Q: But this is something that I know you can not reveal but this is something the working paper had revealed but it also raised the question of the fact that how will then the government maintain its majority shareholding in such a financial holding company?
A: No, these issues have been agreed to, discussed, legally examined and now they are waiting for the final approval of the law ministry.
Q: So you are not saying anything on what the proposed structure is but any timeline on by when the holding company will be setup?
A: If everything goes well then the bill should be introduced subject to approval of the cabinet in the next session of parliament.
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