Financial Services Secretary Rajiv Takru said that the number of new bank licenses to be issued will be clear by October. He added that the clarifications issued by the Reserve Bank of India were clear and the regulator has been as fair as possible in its clarifications.
Rajiv Takru, financial services secretary, told CNBC-TV18 that the number of banking licenses to be issued could be clear only after the first committee of the Reserve Bank of India (RBI) does an interim scrutiny by September-October. He added that the clarifications issued by the RBI on Monday were clear and the regulator had been as fair as possible.
On non banking financial companies (NBFCs) finding it tough to comply with the norms on reserve requirements and priority sectors, he said that there would be no compromise on the lending to such sectors. He added that if the companies found it difficult to meet norms, they could reconsider their decision to apply for licenses.
Commenting on Life Insurance Corporation of India (LIC) Housing Finance’s possible exemption from the requirement of being a non operating holding company, Takru said that the LIC board has not discussed the issue yet. He was unsure whether LIC Housing Finance was applying for a bank license.
Speaking on the time involved for the procedure to complete and the possible number of licenses that could be issued, Takru said that such talks have only happened on informal basis.
He indicated that there was a lot of scope for more banking services as there only 7 lakh bank branches in the country.
Below is the edited transcript of his interview to CNBC-TV18.
Q: The observation from Monday’s guidelines seems to be that they are little more onerous in terms of the stipulations they are settling down for some of these non banking financial companies (NBFCs) and the kind of statutory liquidity ratio (SLR) that they should have the moment they are a bank. What did you make of the fresh guidelines?
A: These are not really guidelines. These are clarifications issued in response to some 443-odd questions which the Reserve Bank of India (RBI) got.
I don’t quite agree with the contention that these are very onerous. The RBI has tried to be as fair as possible and answered the queries which were raised so that we cause the minimum confusion.
I have said on more than one occasion that I belong to the old school. Banking is a fairly serious business; the more conservative and careful RBI is, the better it is for all concerned. I don't think there is a problem here with the degree of difficulty with these guidelines.
Q: Many NBFCs have indicated that it would be tough for them to comply with certain norms on reserve requirements and the priority sector lending in the time span that has been guided for. How easy or tough this might be for them?
A: We have to separate the men from the boys. If there are some boys out there who think that they would find it difficult to meet the criteria relating to the priority sector or find it difficult to go to the unbanked areas, then probably they need to rethink.
Perhaps they could give up the idea of applying because these are priority sectors for the government and the RBI. I don't think any compromise is going to be possible there.
They should be grateful because the clarifications have come through now and they are clear that they will not be ale to meet the criteria then they should just call it a day.
Q: One clarification on a company owned by LIC India; LIC Housing Finance. It is unclear what exactly LIC India has to do. Whether or not they should be exempted from that requirement of being a non-operating holding finance company and whether the act of parliament does allow them to step around that. What is your own understanding of where things stand for LIC Housing Finance?
A: I am on the board of LIC and this matter had not been discussed. I would just like to clarify that we don't discuss individual cases and I have no idea about this case.
Since you have raised this point, I will try to find out. Perhaps, LIC Housing Finance or LIC India could give you an official clarification on this.
Q: The other clarification that RBI set out was that public ownership of 51 percent doesn’t necessarily mean listing. Just wanted to understand the government’s own stand with regards to some of the corporate entities. Do they stand an equal chance in terms of applying for these bank licenses?
A: The RBI is fairly independent in the views they take. The clarifications and views are something which we would leave it to the RBI to explain. The government has not taken a stand on anything which the RBI has said in this matter so far.
Secondly, I would draw your attention that government has its secretaries on the board of the RBI. So if we hold a discussion on this matter, it would not be in the public domain but on the board of RBI.
Q: The RBI has set July 13 as the last date for the submission of the applications. How much time do you think it will take for the entire process to be completed and so far any numbers on how many banking licenses could be given out?
A: We have been discussing this informally for sometime now. We would need to work backwards depending on what kind of banking coverage is available in India at the moment. The figures are around 6.3 per lakh or around 7 lakh branches. We are considerably under banked.
There is a lot of scope for new banks. We have to look at the economies of scale and number of branches and the capacity of the person who gets the license, how many branches they can open, what kind of timeframe they would need.
This is going to be a considered decision which is going to be made and firmed up only once we know the really good applicants from those who have applied.
So you need to wait at least till the interim scrutiny by the first committee of RBI gets over which would be around September-October. By the time they know how many meet the minimum benchmark after scrutinising applicants, we would be able to react to that. Giving numbers prematurely at this time would be silly.