Budget may permit new private sector banks

Granting new licenses for private sector banks is likely to figure in the budget proposals, by industrial houses and a roadmap for it to be announced in the annual union budget that is to be presented later this month. 

Reports say that the formal and final guidelines would be announced by RBI on who should be allowed to set up new banks and on what terms and conditions, following the budget speech by finance minister Pranab Mukherjee 28 February.

In his budget speech last year, Mukherjee had said there existed a need for extension of the geographic coverage of banks and improvement of access to banking services.

The Reserve Bank of India (RBI) is close to finalising entry guidelines for new private sector banks based on the consultations it had with the government and various stakeholders, and the feedback to its August 2010 discussion paper on the issue, according to sources familiar with the matter.

Among various options, the RBI is said to be considering granting licences to small banks initially for a few years, which could be upgraded to full-fledged banking licences if the central bank is satisfied with their performance and fulfillment of certain criteria.
 
The guidelines could cover aspects like minimum capital for new banks and contribution of promoters, minimum and maximum caps on holding of promoters and others. Also  foreign shareholding, business model for the new banks and whether industrial houses, NBFC (non-banking financial companies) could be allowed to run banks could be covered.

Among the corporate houses said to be keen on setting up banks are Anil Ambani-led Reliance group, the Aditya Birla group and the Religare group.
 
Several NBFCs and micro-finance institutions have also evinced interest in the banking business, it is said.