RBI Governor to seek formal approval from poll panel; 25 applicants await final decision

The RBI may issue bank licences in a few weeks subject to the Election Commission’s nod, ending the wait for the 25 applicants.

Since the model code of conduct took effect on March 5, Reserve Bank of India Governor Raghuram Rajan said the RBI would formally seek the Election Commission’s approval to award the new bank licences.

The RBI Governor was addressing a joint press conference with Finance Minister P Chidambaram after their customary post-Budget meeting.

“I still have to take formal approval from the Election Commission that announcing of the bank licences is okay. I think a number of people have said that (it is okay) but it would be best that this process is formally approved by the Election Commission,” said Rajan.

On Wednesday, Chidambaram had said the approval of the Commission was not needed to grant banking licences to the private companies

The applicants for new licences include the Aditya Birla group, Anil Ambani’s Reliance group, IDFC, IFCI, L&T Finance Holdings, Muthoot Finance and LIC Housing Finance.

The applications have been examined by a committee headed by former RBI Governor Bimal Jalan. Now, the RBI Governor and a Deputy Governor will re-examine the applications and forward their views to the committee of the RBI’s Central Board, which will take the final call.

Targeting inflation

Stressing the need for growth with price stability, Chidambaram suggested that Parliament should set the inflation target, which the Reserve Bank should achieve. “I think that is the correct approach…”

A few days ago, Rajan had talked about the Central Government setting the inflation target through Parliament, which the RBI would achieve after using its ways and means.

Chidambaram appreciated that “there is a great degree of convergence on the way to go forward”. Price stability “is what the people of the country want — that is what the people of this country deserve”, he said.

Urjit Patel panel

Chidambaram’s statement is being seen as an endorsement of the Urjit Patel Committee’s recommendation on the Government setting the inflation target and leaving it to the central bank to achieve it, which is the practice in the West.

The committee also recommended that the RBI set a retail inflation target of 8 per cent by January 2015 and 6 per cent by January 2016.

Stable economy

Referring to the economy, Chidambaram said it “certainly is more stable today than it was 18 months ago. That is reflected in the strengthening of the rupee; that is reflected in heightened interest of investors, both FDI and FII.”

Twin deficits

In a span of 18 days, the Finance Minister had revised the current account deficit estimate to less than $40 billion. Chidambaram said the CAD was estimated to be lower than $40 billion, and said he was hopeful of meeting the revised fiscal deficit target of 4.6 per cent.

(This article was published on March 7, 2014)
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