New bank licences to be issued early next year: Rajan

The Reserve Bank of India (RBI) is well on course to issue licences to new banks from early next year, central bank governor Raghuram Rajan said in Kolkata on Friday.

Speaking on the sidelines of a meeting of the central board of directors of RBI, the Rajan said the process of issuing new banking licences are progressing as planned and that the RBI expects to issue these licences by early 2014.

''We are largely in line with our target date, may be a few weeks this way or that way. We hope to start handing out the licences by early next year,'' Rajan said.

A committee headed by former RBI governor Bimal Jalan is looking into the various issues connected with the issue of new bank licences. Rajan refused to indicate the number of licences likely to be issued.

About 26 companies had initially applied for bank licences. However, some applicants like the Tatas and the Videocon Group have opted out, saying the issue of addressing regulatory concerns over business units and their financial structure would be a near-impossible task for diversified business groups.

Rajan said the decision to issue licences would be taken by the committee. ''That will be based on what the committee recommends and what the RBI decides. We don't have a fixed number in mind,'' Rajan said.

Earlier, on 11 December, speaking on `Reforms on the Financial Sector' at the valedictory session of the `National Conference on Leadership 2013' organised by the Confederation of Indian Industry (CII) at Kolkata, Rajan said, ''To improve the financial system, we plan to build the Reserve Bank's developmental measures over the next few quarters on five pillars.''

According to Rajan, these are:

  • Clarifying and strengthening the monetary policy framework;
  • Strengthening banking structure through new entry, branch expansion, encouraging new varieties of banks, and moving foreign banks into better regulated organisational forms;
  • Broadening and deepening financial markets and increasing their liquidity and resilience so that they can help allocate and absorb the risks entailed in financing India's growth;
  • Expanding access to finance for small and medium enterprises, the unorganised sector, the poor, and remote and underserved areas; and
  • Improving the system's ability to deal with corporate distress and financial institution distress by strengthening real and financial restructuring as well as debt recovery.

Referring to the issue of regulation of foreign banks' operations in the country, Rajan said most of the banks currently operating in the country are neither keen on shifting to the proposed subsidiary model or expanding their branches through the wholly owned subsidiary model.

Rajan said the wholly-owned subsidiary model is important from the perspective of stability in the banking system. It would also help foreign banks preserve capital, he added.

''There are benefits to it that foreign banks will see as they study it over time. One of the benefits is that they can expand a little more, but they don't seem to be interested,'' he said.

''It is interesting. One section thinks that we have given away too much to the foreign banks and therefore they are protesting against the model. But the foreign banks themselves don't seem to be interested,'' he said.

Rajan said the RBI would look at maintaining liquidity in the market at a certain level.

The RBI governor, who was chief economic advisor in the finance ministry before taking over as RBI Governor on 4 September, meanwhile, met finance minister P Chidambaram and discussed the macroeconomic situation ahead of the mid-quarter policy review next week.

Rajan said there was not much room to indulge in monetary policy accommodation, given the high inflation.

Rajan's remarks come after official data showed that the consumer price inflation has spurted to 11.24 per cent in November from 10.17 per cent in October.

The meeting of the central board of the Reserve Bank of India reviewed the current economic situation, global and domestic challenges and policy responses.

The board meets at least once every quarter. Apart from holding meetings in Mumbai, Chennai, Kolkata and one in New Delhi after the union budget, which is addressed by the finance minister, the rest of the meetings are held in other state capitals by rotation.

The main function of the central board of directors of the Reserve Bank is to provide overall direction to the Reserve Bank's affairs.