Decision on bank re-capitalisation soon

The Finance Ministry has asked the Reserve Bank of India to finalise guidelines for new banking licences and start accepting applications for the same. The Ministry has also cleared doubts over providing additional capital to public sector banks in the current fiscal.

“We wrote to the RBI recently urging them to finalise the guidelines and proceed to receive applications for new banking licences in anticipation of the amendment in the Banking Regulation Act,” Finance Minister P. Chidambaram said here on Thursday. He was addressing the media after reviewing the performance of public sector banks and financial institutions.

Chidambaram said the “power or the authority” that the RBI wants is already available in the other provisions of the law and with the central bank’s own regulations and guidelines for new banking licences.

“We are only formalising them by amending the Banking Regulation Act. And I have assured the RBI that the Act will indeed be amended, hopefully in the Winter Session (of Parliament), if not, in the Budget Session.”

The Finance Minister said even if the RBI proceeded to receive applications and process them now, the first banking licence was not likely to be issued in the next six or eight months. “So, by the time the licence is issued and the banks come to existence and begin to function, the Act would have been amended,” he said.

RBI Governor D. Subbarao had, last month, said that the central bank was awaiting amendments to the law giving it powers to deal with corporates entering the banking sector.

Bank Recapitalisation

Chidambaram also said that the decision on allocation of additional capital for various banks would be taken within a few weeks. The Finance Ministry had provided over Rs 15,000 crore in the Budget for bank recapitalisation. However, the Planning Commission had advised them to defer this expenditure to next year.

But, the Finance Minister reaffirmed that the Government would infuse additional capital. This extra money is required to meet Basel III norms. Among various banks, Indian Overseas Bank, Central Bank of India and Bank of Maharashtra will benefit from recapitalisation, he added.

Shishir.Sinha@thehindu.co.in

(This article was published on November 15, 2012)
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