No ceiling on number of new bank licences: Chidambaram

With 26 public and private sector companies applying for bank licences, Finance Minister P. Chidambaram has said there was no ceiling on the number of entities which can be permitted to operate a bank.

“I don’t think there is a ceiling. I don’t think there is a number in mind. It all depends upon how many applicants are eligible applicants. The fact that somebody applies doesn’t mean he is an eligible applicant,” he told PTI in an interview.

“If there are very few eligible applicants, then the number of banks that will get licences will also be few. I don’t think that the Governor has any ceiling in mind,” he said.

On whether India needs large banks or a large number of banks, the Finance Minister said there is a case for both.

“A large number of banks will mean more competition and a quicker reaching into the country and faster financial inclusion.

“Large banks will mean that we are able to finance large projects using our own bank resources rather than depending upon foreign bank resources. So, both are required in this country,” he said.

Yesterday, RBI announced that 26 entities, including Tata Sons, LIC Housing Finance, Aditya Birla Nuvo, Department of Posts, Reliance Capital, L&T Finance and Bajaj Finserv, had applied for grant of bank licences.

The RBI had issued guidelines for ‘Licensing of New Banks in the Private Sector’ on February 22 and came out with clarifications in the first week of June.

RBI Governor D. Subbarao had earlier said “our effort will be to make that judgement as transparent as objective as contestable as possible...I want to say that not everybody who is fit and proper will be given a (bank) licence because we expect the number of eligible applicants will be much larger than what is meaningful number of licences we can give”.

Decision on FDI cap in third week of July

Seeking to spur foreign investments, Chidambaram said the Union Cabinet would decide on raising FDI caps in different sectors in the third week of this month.

The Department of Industrial Policy and Promotion (DIPP) is holding consultations with different ministries on the suggestion of the Finance Ministry which has proposed sweeping changes in the FDI regime in sectors such as defence, telecom and multi-brand retail.

“The DIPP is calling each Ministry and asking for its views in writing. They have told me that they will bring a paper to Cabinet. Hopefully in the second week, it will be sent to the Cabinet and then we should be able to take a decision in the third week,” Chidambaram told PTI.

He also said he has met Commerce and Industry Minister Anand Sharma and reviewed some papers that would be put before the Cabinet.

”...we have drawn up some timelines. These (the papers) will come to the Cabinet in the second and third week of July,” he added.

Seeking to promote India as an investment destination, the Finance Ministry on June 18 favoured higher sectoral caps in almost all the sectors including defence, multi-brand retail and telecom.

Virtually doing away with the 26 per cent ceiling, a committee headed by Economic Affairs Secretary Arvind Mayaram recommended that FDI limit be raised to 49 per cent in almost all sectors through the automatic route.

The Committee suggested that FDI in defence be raised to 49 per cent under the Government approval route, from 26 per cent at present.

Besides, it has proposed to increase the FDI cap to 74 per cent in multi-brand retail trading under the Government approval route.

It also proposed raising the cap to 49 per cent under the automatic route in sectors such as single-brand retail, existing pharma companies, power and commodity exchanges, PSU banks, tea plantation, print media, PSU petroleum refinery, asset reconstruction companies, stock exchanges, insurance, depositories and clearing corporations and satellite services.

As regards courier services, the Mayaram panel said FDI up to 100 per cent be allowed under the automatic route. In the civil aviation sector, the committee suggested 100 per cent FDI in non-scheduled air transport services under the automatic route as against 49 per cent.