P Chidambanaram asks to start the process to invite applications without waiting for legal amendment
Finance Minister P Chidambaram told reporters on Thursday that the government had written to the central bank to finalise the licence guidelines and start receiving applications.
"We have written to RBI recently, urging them to proceed to finalise the guidelines and proceed to receive applications for new bank licences in anticipation of the Banking Regulation Act being amended," he said.
"I have assured RBI that the Banking Regulation Act will indeed be amended hopefully in the winter session. If not in the winter session, in budget session."
But the process needn't wait until the law is amended, the finance minister said, adding the specific powers that the central bank wants before it starts the process were already available under other existing laws.
"The three powers or authority, which RBI wants, are already available in other provisions of law and in RBI's own regulation and guidelines. We are only formalising them by amending the Banking Regulation Act," Chidambaram said, promising speedy passage of amendments.
The finance ministry is of the view that in any case it will take six to eight months for a new licence to be issued and the first occasion to exercise those extraordinary powers will arise much later. By this time, the banking Act would have been amended, it argues.
"If RBI were to do this..., it would certainly cut short the time to issue new licences," said Vibha Batra, co-head for financial sector ratings at rating agency ICRABSE -1.32 %.
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"But there is a downside to it. The required legislation may not go through because of the dynamics in Parliament," cautioned Batra of ICRA.
"Finance ministers in the past have also expressed their intent to amend the Banking Regulation Act. However, it has to be cleared by Parliament, which may not be easy," said Ashvin Parekh, partner at consultants Ernst & Young.
Chidambaram's comments, coming at a time the government is keen to prevent the reform momentum from flagging, will put pressure on the central bank and potentially expose another friction point between the ministry and RBI.
The two are already at loggerheads over monetary easing, with RBI resisting a cut in interest rates that the minister wants.
RBI did not respond to an email seeking comment on the matter.
Famous for its conservatism, RBI has long resisted issuing new private bank licences, a position that has often left it at odds with parts of the government and industry groups.
Courtesy: Economic Times