Four new pvt bank licences likely in first lot

While more than a dozen corporate and non-banking finance companies (NBFCs) are keen on making a banking debut, the Reserve Bank of India (RBI) may start off by handing out just four new banking licenses, and that too, not all at once. Although the central bank will refer the applications of candidates to an external group, some key criteria for eligibility appear to be in place. With the central bank preferring to allow "well-established corporate houses with no exposure to sensitive sectors like real estate and a diversified ownership," it would appear that NBFCs including L&T Finance, SKS Microfinance and Shriram Group stand the best chance of making it to the first list.

"RBI would cap the number of bank licenses in this round at four, though these too will be given in a phased manner. Nothing has been finalized as yet since RBI's discussions are at a preliminary stage," said a source in the know of the development. He added that key criteria for selecting potential candidates would be, "corporate with pedigree, dispersed shareholding and no exposure to sensitive sectors like real estate."

"RBI is also expected to set a net worth requirement of Rs 1,000 crore and give promoters of new banks up to 10 years to reduce their holding in a phased manner," said a source familiar with the development. It's also possible they would need to open 25% of their branches in rural areas. The guidelines issued in 1993 for new private sector banks had prescribed Rs 100 crore as minimum capital. This was raised to Rs 200 crore in 2001 with a condition that it be raised further to Rs300 crore over three years from starting business.

It's early days yet since the discussion paper was released in early August and the central bank is still in discussions with prospective candidates about the possible guidelines. However, based on the criteria that RBI will keep in mind while allowing new players, the four NBFCs, sources said, stand a good chance of making it. The discussion paper reflected RBI's concerns on allowing new banks. Past approaches, international experience and the various costs and benefits of having more new banks as well as the pros and cons of policy parameters were considered. The RBI is expected to set stiff eligibility criteria. It had invited comments from industry groups and other stakeholders.

In the Union Budget for 2010-11, finance minister Pranab Mukherjee had said the RBI was considering issuing banking licenses to private sector firms and NBFCs.