“It is a very bad idea to give new banking licences to corporates. This was something when clear separation took place decades ago for very good reason and any relaxation in these norms is going to lead to not only unnecessary conflict of interest but also unnecessary risks to the financial system,” Standing Committee on Finance Chairman, Yashwant Sinha, had remarked last year.

The comments came though the Reserve Bank of India hadn’t granted banking licences for as long as 10 years.

With a new BJP Government taking charge, will Finance Minister Arun Jaitley hold a view contrary to that of Sinha, who held charge of the portfolio in the Atal Bihari Vajpayee Government?

Last month, the Reserve Bank granted licences to just two entities — Kolkata-based Bandhan Microfinance and Mumbai-based infrastructure financier IDFC Ltd. The RBI also asked the Government to look closely at the application of state-owned India Post and recommend if it could be given a banking licence. What this meant was 22 other applicants (two had pulled out) were left out.

Prepared to wait

When contacted, most of them said they would continue to focus on their business and wait for the regulator’s on-tap licensing or differentiated banking guidelines.

In fact, RBI Governor Raghuram Rajan had later observed that the ones who did not make it were probably more suited to be a different kind of bank. In January this year, the RBI-appointed Nachiket Mor committee had recommended giving out licences to entities that could focus either on payments or on collecting deposits, in an effort to widen the delivery of financial services.

The drive to issue more licences to open banks was set in motion first by the then finance minister Pranab Mukherjee.

This was also done with the intent of furthering the agenda of financial inclusion in a country where more than half the population have no access to banking services. The Narendra Modi-led Government will now be in a spot on whether to hand out more banking licences, especially to corporates.

Addressing a massive gathering in Vadodara after emerging victorious on May 16, Modi had said that his Government will take forward the good work done by the previous regime(s). The issue could be a hot potato for the Government.

Finance Minister Jaitley will now have to walk a tightrope as the BJP strongman is also tasked with heading the Ministry of Corporate Affairs.

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