Financial Daily from THE HINDU group of publications
Monday, Oct 18, 2004
Financial Daily from THE HINDU group of publications Monday, Oct 18, 2004 |
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Private Banks Money & Banking - Private Banks Entry norms for pvt banks may be relaxed — Ministry seeks scaling down of Rs 300-cr capital requirement Sarbajeet K. Sen
New Delhi , Oct. 17 SOFTER entry norms for private sector banks might be in the offing with the Finance Ministry nudging the Reserve Bank of India to scale down the proposed Rs 300-crore minimum capital requirement. The indicative minimum capital limit has been stipulated in the RBI's draft ownership norms for private banks. The Ministry is of the opinion that the proposed level of capital is too high for start-ups to come up in the banking sector. "We feel that Rs 300 crore is on the higher side. It could be restrictive," a senior Finance Ministry official said. The Ministry has pointed out to the central bank that a high capital requirement could stifle competition in the financial sector and would be running contrary to the spirit of the `Common Minimum Programme' of the UPA Government. "The programme talks of expanding competition in the financial sector. We have to have capital requirement that encourages such competition," the official said. However, he did not want to indicate the figure that the Finance Ministry has proposed as an alternative. "The RBI would arrive at a figure after taking all views into consideration." The Government's views on the need to tone down the capital requirement comes alongside its suggestion to the RBI that the proposed restrictions on equity in private banks be made applicable on a prospective basis and not applied to existing banks. Proposing the Rs 300-crore floor level, the RBI had said that if at any point a bank's capital slips below that level, it would have to be restored to the proposed limit "within reasonable time." Currently, the limit proposed in the draft released in early July is stiffer than what the RBI had proposed as the minimum capital for banks in January 2001. At that time, the central bank had said that banks should have minimum capital of Rs 200 crore (from Rs 100 crore earlier), which had to be scaled up to Rs 300 crore within three years. However, the RBI has admitted that some private banks that have been in existence before January 2001 have not yet been unable to raise their capital even to Rs 200 crore. "In the interest of having sufficient minimum size for financial stability, all the existing private banks should be able to fulfil the minimum net worth requirement of Rs 300 crore required for new entry. "Hence, any bank falling below this level will be required to submit a time-bound programme for capital augmentation to the RBI for approval," it has said.
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