RBI outlines banking entry requirements for private sector

Nearly six months after union finance minister Pranab Mukherjee pointed out the need for new regulations for the hybrid growth of the Indian banking sector and called for the entry of large industrial houses and eligible non-banking financial companies (NBFCs), the Reserve Bank of India yesterday released a discussion paper on 'Entry of new banks in the private sector' as a precursor to the actual policy framing process.

The discussion paper has invited comments on issues like permission to new banks (including local area banks), allowing industrial, business houses to promote banks and conversion of NBFCs into banks.

The main areas listed for discussion and debate are related to minimum capital requirements, contributions from promoters, limits on promoter shareholding and allowance of foreign equity in the sector and whether NBFCs be allowed to be converted into banks.

Regarding capital requirement, RBI has voiced its opinion that given the high level of minimum capital requirement only serious players be invited into the banking space.

It has also discussed the benefits and disadvantages of keeping minimum capital requirement at a low level of over 'Rs300 core, middle level of 'Rs500 crore and high level of 'Rs1,000 crore.

According to the discussion paper, while low level of minimum capital may lead to optimal ultilisation levels of resources from the the start, it may invite non-serious players entering the field.