MPs concerned over bank licences to industrial houses

Some Members of Parliament (MPs) are believed to have expressed reservation over the Reserve Bank's draft proposal to grant banking licences to industrial houses arguing that it would not promote financial inclusion.

These views, according to sources, were expressed by some MPs at a meeting of the Parliamentary Standing Committee on Finance held here today under the chairmanship of senior BJP leader and former Finance Minister Yashwant Sinha.

RBI Governor D Subbarao and other senior officials have briefed the Committee about the draft guidelines on granting licences for setting up new banks.

Some members, according to sources, have argued that granting banking licences to industrial houses would not help financial inclusion as they may not be interested in providing services in rural and semi-urban areas.

It was pointed out that private sector banks have been avoiding setting up branches in rural areas.

The RBI had on August 29 issued draft guidelines for new bank licenses.

As per the draft norms, private sector entities or groups and controlled by Indian promoters, with diversified ownership, sound credentials and integrity, and having successful track record of at least 10 years, will be eligible to promote banks.

Besides banking licenses, the Committee also held deliberations on the Direct Taxes Code (DTC) Bill.

The DTC seeks to update taxation laws and replace the archaic Income Tax Act, 1961.

The draft norms on bank licences have pegged the minimum required capital for promoting bank at Rs 500 crore and restrict foreign shareholding at 49 per cent for the first five years.

Currently, India has 26 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, 4 local area banks, 1721 urban cooperative banks, 31 state cooperative banks, and 371 district central co-operative banks.

According to sources, representatives of industry bodies Nasscom (National Association of Software and Services Companies) and Cellular Operators Association of India (COAI) and consultancy firms KPMG and Ernst and Young made presentations before the Committee.