RBI grants ‘in-principle’ nod for bank licences to IDFC, Bandhan

The Reserve Bank of India (RBI) has decided to grant ''in-principle'' approval to IDFC Limited and Bandhan Financial Services Private Limited to set up banks under the new licensing guidelines for new banks in the private sector.

These two applicants were also recommended as suitable for grant of ''in-principle'' approval by the High Level Advisory Committee (HLAC) headed by Bimal Jalan set up by the RBI.

The HLAC has also recommended that RBI consider the issue of granting banking licence to the Department of Posts separately in consultation with the government of India.

The RBI has accepted the recommendation of the HLAC.

The ''in-principle'' approval granted will be valid for a period of 18 months during which the applicants have to comply with the requirements under the guidelines and fulfil the other conditions as may be stipulated by the RBI.

Once the RBI is satisfied that the applicants have complied with the requisite conditions, they would be considered for grant of a licence for commencement of regular banking business.

Until a regular licence is issued, the applicants would be barred from doing banking business, RBI said.

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.

Incorporated in 1997 in Chennai, IDFC was set up on the recommendations of the expert group on commercialisation of infrastructure projects.

IDFC also has a presence in merchant banking, broking, private equity and asset management (mutual fund).

''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,'' Rajiv B Lall, executive chairman, IDFC, said.

Incorporated as a non-governmental organisation in 2001, Bandhan is the largest micro-finance institution (MFI) in the country with 22-per cent market share.

Bandhan plans to open its first bank branch in Kolkata.

This is the first time in 10 years that the RBI is issuing new bank licences after the grant of licences to Kotak Mahindra Bank and Yes Bank in 2004.

New banking licences are being issued in order to extend the geographic coverage of banks and improve access to banking services.

The two were selected from a list of 25 applicants recommended by the HLAC set up on 30 October 2013.

Among the big names in the fray were Aditya Birla Nuvo, Bajaj Finserv, LIC Housing Finance Ltd, L&T Finance Holdings, Reliance Capital, Religare Enterprises and Shriram Capital.

The Tata Group and Vodafone had earlier withdrawn from the race as they found it difficult to meet the requirements (See: Tatas opt out of race for banking licence).