Move will not be considered back-door entry into sector, says Deputy Governor R Gandhi

If an entity, whose application to become a bank has been rejected by the RBI, buys a strategic stake in a bank, then it does not amount to back-door entry into banking, according to a top RBI official.

Any person or entity that wishes to acquire more than five per cent stake in a bank is required to apply to the RBI and it examines such applications on merit, said R Gandhi, the new RBI deputy governor.

When asked if allowing entities to buy a large stake in a bank would amount to back-door entry (especially for the ones that did not make the cut), Gandhi said, “What is a back-door entry? If they want to buy more than 5 per cent stake in a particular bank, then the applications will come. We will apply our mind and do the due diligence.

“They might have been rejected for bank licence but here they are going to come as a shareholder. It won’t be a bar just because their licence application was rejected.”

According to a recent media report, non-banking finance company L&T Finance Holdings Ltd, which was one of the 25 applicants for new bank licences and which did not make the cut, is in talks with YES Bank to buy out the promoters’ stake of about 23 per cent. The NBFC had approached the RBI “informally,” according to the report.

On-tap licence

Companies that lost out in the current round said that they will examine their future strategy after the RBI comes out with detailed guidelines on handing out “on-tap” and “differentiated” bank licences.

On-tap licensing means any entity intending to start a bank could apply to the RBI at any point as against the current system where they apply when the window opens.

Differentiated bank licences, one of the key recommendations of the Nachiket Mor committee on financial inclusion, refers to licences given to banks specialising in key functions — either lending or borrowing.

Gandhi said that the RBI was working on the guidelines for both types of banks and that it would be put out within the year.

Prepayment penalty

When asked if non-banking finance companies too would be required to waive off prepayment penalty for foreclosure of floating rate loans, he said: “That, we have not yet fully examined. We will examine that. Consumer protection across (banking as well as non-banking) we have to see… we will see.”

(This article was published on May 8, 2014)
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