- Friday, June 4, 2010, 6:51
- RBI / FEMA
Corporate houses seeking banking licences will come under the scrutiny of both the Reserve Bank of India and the finance ministry, which are keen to restrict the entry of players involved in dubious transactions. The books and accounts of all group companies will be examined before granting the new banking licences, proposed by the finance minister in the Union budget, said a finance ministry official privy to the deliberations on the subject.
The scrutiny is meant to avoid situations such as the Bank of Rajasthan fiasco, where the Tayal Group owned more than 55% stake, which had resulted in serious corporate governance issues, the finance ministry official said.
RBI will put out a discussion paper next month on the norms for issuing new banking licenses to private companies and non-banking finance companies. “The banking regulator and the ministry have agreed that there should be a scrutiny of the accounts of those seeking licences to assertion whether the promoters have defaulted on any loans,” the official said, requesting anonymity.
Leading business groups such as ADAG, IndiaBulls and Tatas have expressed interest in setting up banks.
Finance Minister Pranab Mukherjee had, in his budget speech in February, announced the government’s intent to give out more banking licences.
“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,” Mr Mukherjee had said.
The regulator has already initiated a scrutiny of the books of accounts of the Tayal group and has requested the finance ministry to direct public sector banks not to issue any fresh loan to the group. “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,” an RBI official said.
The finance ministry is expected seek help from other government regulatory bodies to ascertain that the licence seekers’ debt or other financial dealings will not have any repercussion on the banking entity. As of now RBI holds the discretionary power to decide whether a company belongs to the particular promoter group.
Under the existing regulations, the initial minimum paid-up capital for a new bank should be Rs 200 crore and the promoter’s contribution shall be at least 40% of the paid-up capital of the bank at any point of time.
The current laws state that an individual company or its subsidiaries can only hold a maximum of 10% stake in the proposed new bank.