Banking Licenses Should Open Up For Industrial Business Houses, says Assocham

October 08, 2010 :

A “liberalized” approach has been recommended by the Associated chamber of commerce and industry of India (ASSOCHAM) to RBI to award licences for new banks to mop up funds that are needed to cover the large number of Indian citizens who do not currently have access to banking services.

The chamber stressed that all industrial houses irrespective of their main business should be given a fair chance to apply for licences for new banks. Historically, the Indian business houses have expanded and diversified into a variety of segments due to their entrepreneurial skills and risk bearing appetite. Those that have adequate capital adequacy, technology, innovation, risk management skills, high degree of corporate governance and sustainability should be given banking licences.

Due to the increased requirement of capital for the economy estimated at over 2 lakh crores and also to face business risks in a fast growing economy the Chamber felt that the preferred capital requirements at the entry level be around Rs. 1,000/- crores so that scaling of operations and meeting mass banking requirements are met.

The freedom to choose different models which include niche sectors such as NBFC’s or geographical reach or partnership with a variety of financial institutions should be left to the applicants.



Big business houses that have real estate as part of their portfolio should not be excluded from applying for fresh licence as they have the capacity and capability of making the growing requirement of capital as well as entrepreneur skills.

According to ASSOCHAM, promoters of new banks need at least 10 years before a reduction in shareholding becomes mandatory. It was suggested that the lower share holding be around 20% at the end of a decade with a five year lock in period in the initial years to ensure their effective involvement in the business, on the strength whereof the public would have contributed to the equity.

According to ASSOCHAM, Minimum and maximum caps on prompter shareholding and other shareholders for first 3 years, should be allowed to have 100% shareholding. So that they are free to establish the bank as per their stated goals and objectives



NOTE: Licensing of New Banks- The Finance Minister, in his budget speech on February 26, 2010 announced that the Reserve Bank was considering giving some additional banking licenses to private sector players. NBFCs could also be considered, if they meet the Reserve Bank’s eligibility criteria.



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