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RBI Unveils Draft Norms On Allowing Corporates To Set Up Banks

PTI 29 Aug 2011, 19:47:55 IST

Mumbai, Aug 29: After discussing it for over an year, the Reserve Bank today came out with draft guidelines for allowing business houses with successful track record and a minimum capital of Rs 500 crore to set up commercial banks. 

The draft, on which the RBI has invited comments from stakeholders till October 30, also spelt out the framework for converting non-banking financial companies into banks. 

As per the draft guidelines, the minimum capital requirement for a company to set up a bank has been pegged at Rs 500 crore, up from existing Rs 300 crore. 

Although the move to allow corporates to set up banks is welcomed by India Inc, RBI Governor D Subbarao had expressed concerns by saying the entry of business houses into the banking space could open up opportunities for “self-dealing”. 

“...if a corporate has an interest in a bank as a promoter or a shareholder, but has no position on the board, then there is no prohibition on the bank lending to the corporate. This opens up opportunities for self-dealing,” he had said earlier this month.

The draft, which follows a discussion paper on the issue by the central bank in last August, does not specify the number of licences to be issued as part of the new policy.  RBI had in 2001 issued two banking licences. In 1993, it had allowed 10 entities to float commercial banks.

Several business houses, including ADAG, Aditya Birla Group and Larsen & Tourbo, have evinced interest in setting up banks. State-run LIC too is keen to enter the space.

Finance Minister Pranab Mukherjee in his Budget speech last year had said RBI would grant banking licences to private sector players and NBFCs. PTI