The Reserve Bank of India should pick up the thread and resume the process of finalising guidelines for issuing licences for setting up new private sector banks, said Finance Minister P. Chidambaram.

Among others, the central bank is seeking powers to supersede the boards of banks through amendments to the Banking Regulation Act, 1949. While the Government is keen that the RBI kickstarts the process of issuing bank licences, the central bank has said that the process of inviting applications for setting up new banks in the private sector will be initiated only after the Banking Regulation Act is amended.

Chidambaram said “Let me emphasise, the three powers that the RBI wants are already there in the regulation.” He observed that it is only a matter of formality to incorporate those powers into the Act. Even if the RBI picks up the thread and resumes the process of issuing guidelines for new bank licences, it will take 6-8 months after that for banks to begin operations.

“The occasion to invoke the extraordinary powers will not come just next day after the licences are granted. So, we must start the process of receiving the applications of new licences as soon as possible. I hope the Government’s well-positioned suggestion is taken up by the RBI,” Chidambaram said.

The Finance Ministry has sent a letter on the new banking licences just 10 days ago and a formal reply from the RBI has not been received yet. “I don’t know the official position as yet,” Chidambaram said.

Chidambaram said both the options — opening new branches or subsidiaries, — were available for foreign banks even if the RBI might have a preferred choice for the subsidiary route for foreign banks’ presence in India.

Direct cash transfer

Chidambaram said the Government wants to extensively use the banking system to transfer money under various Government schemes to the people. This is perhaps the most innovative step the Government has taken in the beginning of this decade, he added.

Scholarships, pensions, subsidies and other payments will be paid to customers directly. Beginning January 1, the Government will start paying money directly in 51 districts through Aadhaar-enabled bank accounts. Once the rollout begins, the Government wants the process completed in all the 600 districts by December 2013.

(This article was published on November 24, 2012)
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