Corporate leaders all for new banking licences

Unlike their counterparts in the banking industry, corporate leaders have come out strongly in favour of granting more bank licences. At a meeting with the Reserve Bank of India on Friday, industry associations such as FICCI, Assocham and CII made a strong pitch for allowing industrial houses with a good track record in financial services sector to set up banks.

This is in sharp contrast to the attitude of the country's bankers, whom the RBI met later in the day. The existing banks were clearly opposed to the entry of more competition in their space, although they had to soften their tune when RBI pointed out that the government had already decided to issue more banking licences. (See: Banks seek tougher norms for new licence grants)

FICCI strongly supported allowing industrial houses with a good track record in financial services business for at least 10 years to set up banks, with sufficient safeguards in place. Business houses should also be allowed to use their brands/logos, FICCI said.

Both FICCI and Assocham suggested that the minimum capital be fixed at Rs1,000 crore to ensure the entry of only serious and long-term players.
The FICCI delegation recommended putting in place safeguards to check the connection of applicants to the booming but generally under-controlled real estate sector, where fortunes can be made quickly.

It has proposed that property exposure should not be more 10 per of the total assets of the group, the ownership and control of the property arm should be separate from that of the financial services business, and that there should be strict prohibition of any inter-company transactions between the bank and the real estate arm.

Non-banking financial companies (NBFCs) should be allowed to promote as well as convert into banks, FICCI told the RBI. It has also opposed the granting of licences to PSU entities.