Raghuram Rajan, Reserve Bank of India Governor, said that he hopes that the window for new bank licences will open sooner for specialised banks than for full service banks.

“I would say we hope to open the window soon…first for differentiated licences like payment banks and then open the on-tap licences for universal banks,” he said while addressing the post policy press conference here.

On-tap licensing means that the interested entities can apply to the RBI for opening a bank at any point in time as against the current regime, where corporates rushed to apply when the window opened.

“On-tap licensing will allow people to develop banking capabilities even with relatively small size of operations, which will allow them to go ahead and apply for full bank licenses,” the governor added.

In February 2013, the RBI invited interested entities including corporate houses to apply for a banking licence. In all, 26 entities applied.

The RBI is in the final stages of issuing a banking licence to a few of these entities. It has sought the Election Commission’s opinion on going ahead with the licensing process, as the model code of conduct is in place.

“The idea to take the Election Commission on board was to primarily shield the announcement from controversy, so that the new licensees do not get dragged into the political process which could happen quite easily,” Rajan said.

He clarified that the EC, as of now, has the information that it needs and they have to make a decision.

“Once and if they say that there is no issue there, I think we would be in a position to announce the bank licenses fairly quickly after taking it to the committee of central board,” he added.

Further elaborating on the benefits of on-tap licensing, Rajan said that it will allow applicants who miss out in the current round to apply again may be for a differentiated bank like a lending only bank.

“There may be many applicants who are suited to different kind of bank licensing. So we want to tell them that, look the possibility is opening up elsewhere,” he added.

The point we are making is, Rajan said, that the bank licensing in this country is a matter of trust and you have to deserve that trust. “We want to ensure that those people who can build that trust get the opportunity to get the license.”

(This article was published on April 1, 2014)
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