home Advertise
With Us

New bank licences: Reserve Bank could ease initial equity capital requirement of Rs 500 crore

NEW DELHI: The Reserve Bank of India may be open to relaxing the initial equity capital requirement of Rs 500 crore for setting up a bank if it fails to find enough "fit and proper" candidates during the screening process. 

The intention is to allow a greater number of players qualify, a senior official involved with the process of issuing new bank licences said. 

Any final decision to tweak the guidelines would be taken by RBI, but the external screening committee headed by Bimal Jalan, former RBI governor, is expected to play a crucial role in recommending suitable changes. 

RBI, in its 'guidelines for licensing of new banks in the private sector', had specified that the initial minimum paid-up equity capital for a bank shall be 500 crore. Asked about the possibility of relaxing the guidelines, the 
RBI spokeswoman denied any such move was in the works.


According to the senior official directly involved with the new bank licensing process, the limit can be reviewed only after screening applications from the 27 applicants. 

He said thinking on this issue was at a nascent stage. "We may look at relaxing the norms to broaden the pool and invite more applicants," the official said. "If the business plan as submitted by the applicant looks viable, it can be reviewed if lowering the capital requirement can further enhance the bank's operations and sustenance," the official said, requesting anonymity. 

Relaxation on Case-by-case Basis 

Earlier, this month RBI 
Governor Raghuram Rajan had said new licences will be issued by the end of January 2014, adding that RBI is also contemplating 'on-tap' issue of licences. Currently, the central bank issues licence after long intervals. Kotak Mahindra BankBSE 0.32 % and YES BankBSE 0.25 %

 received banking licences in 2003-04. The official also said a relaxation in the Rs 500-crore criterion may be provided on a case-by-case basis. Further, the relaxation may come into play once RBI shifts to the on-top method that is it issues licences whenever an applicant meets the criterion. 

The central bank is of the opinion that financial inclusion should be the larger focus of all new banks, and corporate lending and other activities should only support this endeavour. 

"So, if there are applicants who have a viable model and this initial capital of Rs 500 crore is a deterrent, then we may relax it to support their plans," the official said, adding there will be no relaxation in the capital adequacy requirement, which is 13% for new banks. RBI, however, is strictly against issuing bank licences to corporate houses that are being investigated for diversion of funds. "Banking is all about handling depositors' money, and those corporate houses being investigated in recent scams such as 2G will find it extremely difficult to pass the litmus test," the official said.

At present, 27 entities, including corporate bigwigs such as Anil Ambani-led Reliance Capital, Tata Sons, Aditya Birla Group, L&T, Religare and state-run financial institutions such as India Post, IFCI and TFCI, have applied for banking licence. 

The move

 is also expected to pave way for small banks. 

"The existing model through RRBs or urban co-operatives has not worked as per the expectations so there is a case for this structure, but ultimately the linkages between a small bank and national-level banks need to be strengthened for complete financial inclusion," the official said.