The Reserve Bank of India will start issuing new banking licences from early next year.

RBI Governor Raghuram Rajan said the apex bank is ‘primarily on course’ to hand over the licences. “We are largely in line with our target date, may be a few weeks this way or that way. We hope to start handing out the licences by early next year,” Rajan told reporters here.

He, however, did not peg on the number of licences that would be handed out. The decision to issue licences would be taken by a committee. “That will be based on what the committee recommends and what the RBI decides. We don’t have a fixed number in mind,” Rajan said.

A total of 26 companies have applied for licences.

Foreign Banks

According to Rajan, foreign banks operating in the country are neither keen on expanding their branches nor are they looking for the wholly owned subsidiary model, proposed by the central bank.

“It is interesting. One section thinks that we have given away too much to the foreign banks and therefore they are protesting against the (wholly owned subsidiary) model. But the foreign banks themselves don’t seem to be interested,” he said.

The wholly owned subsidiary model, he pointed out, is important from the perspective of stability in the banking system. “There are benefits to it (subsidiary model) that foreign banks will see as they study it over (a period of) time. One of the benefits is that they can expand a little more, but they don’t seem to be interested,” he said.

The wholly owned subsidiary model would also help the foreign banks preserve capital.

Increased Liquidity

According to Rajan, as far as government bond yields are concerned, the RBI would look at keeping liquidity in markets. It would look to maintain liquidity at a certain level.

(This article was published on December 13, 2013)
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