The finance ministry has cleared the Reserve Bank of India’s draft guidelines on new bank licences with a rider that the existing 74% cap on foreign direct investment be retained.  The central bank, which had proposed capping FDI in new banks at 49% in the first 10 years, is likely to make the guidelines public and may seek comments from all stakeholders again. “We have given our final approval to the RBI and requested them to share the final guidelines after they incorporate comments from other stakeholders,” said a senior finance ministry official.
The ministry has asked the central bank to set up a special committee to vet proposals for banks through a three-stage process. First, the RBI will screen all applications. “In the second stage, a high-level advisory committee comprising experts in banking and finance will vet those applications,” the official said. This committee will finally submit its recommendations to the RBI, which will decide whether licences should be given or not. “The RBI’s decision will be final and will be valid for one year from the date of granting in-principle approval,” he said.

If the RBI finds some irregularities regarding the promoter of the companies or their associated groups, it may impose additional conditions or withdraw the in-principle approval. “The RBI has built in enough safeguards to ensure that industrial houses getting banking licences maintain enough distance from promoter group entities,” the official said.

Many firms, including Reliance Capital , Aditya Birla Financial Services and Religare , want to set up banks.

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