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IDFC and Bandhan Financial Services Private Ltd have been selected by the Reserve Bank of India to set up banks, from a field of 25 aspirants.
The RBI consulted the Election Commission before granting “in-principle” approval to these entities, as a precautionary measure.
Incidentally, both IDFC and Bandhan are non-banking finance companies. While Mumbai-based IDFC is classified as an infrastructure finance company, Kolkata-based Bandhan is a microfinance institution.
The central bank is issuing new bank licences for the first time in ten years. Kotak Mahindra Bank and YES Bank were set up in the last round, in 2004.
IDFC and Bandhan were recommended as suitable for grant of “in-principle” approval by the High Level Advisory Committee set up by the RBI.
Conservative approach The RBI said its approach in this round of bank licences could be categorised as conservative.
“At a time when there is public concern about governance, and when it comes to licences for entities that are intimately trusted by the Indian public, this may well be the most appropriate stance,” the central bank said.
Rajiv B Lall, Executive Chairman, IDFC, said: “The transition from a non-banking finance company specialising in infrastructure finance to a bank will entail lot of hard work. We will become a universal bank.”
The Advisory Committee had also recommended that in the case of Department of Posts, which has applied for a licence, it would be desirable for the RBI to consider the application separately, in consultation with the Government.
Among the big names with hats in the ring are: Aditya Birla Nuvo, Bajaj Finserv, LIC Housing Finance Ltd, L&T Finance Holdings, Reliance Capital, Religare Enterprises and Shriram Capital.
The RBI said it assessed the quantitative and qualitative aspects of the applicants as per the criteria laid down in the guidelines. Based on this, it took a view on the “fit and proper” status of the applicant, it said in a statement.
The approval granted to the two applicants will be valid for 18 months, during which time they have to comply with the requirements on licensing of new banks in the private sector and fulfil other conditions stipulated by the RBI.
Once these conditions are met, they will be considered for grant of a banking licence. Until a regular licence is issued, the applicants will be barred from the banking business. “Both firms have a profitable business model and are aptly chosen from the financial inclusion and responsible banking perspective,” said Monish Shah, Senior Director with Deloitte India.
‘On-tap’ licences Going forward, the RBI intends to use the learning from this exercise to revise guidelines appropriately and give licences more regularly, that is, virtually “on tap”. It will also frame categories of differentiated bank licences, building on its prior discussion paper, and allowing for a wider pool of entrants into the banking sector.
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