New bank licences: RBI's 'fit' criteria ambiguous, says Yashwant Sinha panel

New Delhi: Out of the 12 new banks set up after the 1993 and 2001 guidelines, four were promoted by financial institutions, one each by conversion of a cooperative bank and NBFC into commercial banks, five by individual banking professionals and the remaining one by a media house.

Of the banks promoted by individuals in 1993, only one has survived with muted growth, one was compulsorily merged with a nationalized bank and two merged with private banks. It is in this backdrop that the Standing Committee of Parliament headed by BJP leader and former Finance Minister Yashwant Sinha today adopted a report on the new bank license guidelines issued by the RBI earlier this year.

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Observing that new bank licenses would not guarantee banking sector growth and financial inclusion, the Standing Committee today adopted a 49 page report on the guidelines.

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The Committee has recommended that industry and banking be kept separate, as it is not sure whether the safeguards put in place by the RBI including the fit and proper criteria and group exposure norms would be effective enough to prevent banks promoted by industrial houses from cosying up to their industrial owners.

It has termed the existing fit and proper criteria as subjective, ambiguous and open ended, leaving the doors open for arbitrariness and favouritism. It wants more precise, coherent and objective yardsticks to assess the credentials of the applicants in a uniform manner.

Highlighting the need for sustainability, the committee suggested that the minimum capital requirement for setting up a new bank be doubled to Rs 1000 crore.

The Standing Committee, which has Congress leader Rahul Gandhi as a member, expressed surprised over the absence of lending norms being prescribed in the guidelines, particularly with regard to lending to entities associated with promoters or even lending within the proposed non-operating financial holding company. It wants the pitfalls of misappropriation of banking resources to be avoided.

Finally, the Committee expects the RBI to respond promptly to those applications which are rejected, without leaving any room for speculation or conjecture. It also wants the RBI to allow rejected applicants the opportunity to seek a review.

It is now up to the RBI, which had deposed before the Committee in this regard, to give any weight to the recommendations.