In this fiscal Union Budget finance Minister Pranab Mukherjee had announced that the government intends to give out more banking licenses. This move of govt. was welcomed by many corporate houses who intend to enter into banking especially who are already in finance business. Following this some of the major corporate players have applied for banking licenses.
The finance ministry official told that in order to avoid recently faced situation such as Bank of Rajasthan fiasco, where the Tayal Group held more than 55% stake, which resulted in serious corporate governance issues, the corporate houses who have applied for licenses will come under the scrutiny of both the Reserve Bank of India and the finance ministry so that the entry of players involved in dubious transactions can be restricted.
A finance ministry official privy to the deliberations on the subject said, the books and accounts of all group companies will be scrutinized before they are granted new banking licenses.
Next month RBI will be making public a discussion paper on the norms for issuing new banking licenses to private companies and non-banking finance companies. An anonymous official told, “The banking regulator and the ministry have agreed that there should be a scrutiny of the accounts of those seeking licenses to assertion whether the promoters have defaulted on any loans.”
Few of the leading business groups such as ADAG, IndiaBulls and Tatas have shown keen interest in entering into banking business.
Mr Mukherjee had said, “We need to ensure that the banking system grows in size and sophistication to meet the needs of a modern economy. Besides, there is a need to extend the geographic coverage of banks and improve access to banking services.”
The RBI has already started scrutiny of the books of accounts of the Tayal group and has requested the finance ministry to instruct public sector banks not to issue any fresh loan to the group. An RBI official said, “We had requested the finance ministry to restrict all north-based public sector banks from giving loans to the group till the scrutiny is over.”
The finance ministry will be taking help from other government regulatory bodies before issuing license to the corporate houses to make sure that debt or other financial dealings of license seekers do not have any repercussion on the banking entity. At present RBI has the discretionary power to decide whether a company belongs to the particular promoter group.
As per the existing regulations, the initial minimum paid-up capital for a new bank must be Rs 200 crore and the promoter’s contribution should be at least 40% of the paid-up capital of the bank at any point of time.
According to current law an individual company or its subsidiaries can own a maximum of 10% stake in the proposed new bank.
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