House panel proposes auction to set up pvt banks | india | Hindustan Times
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House panel proposes auction to set up pvt banks

Members of a Parliamentary panel on Monday suggested an “auction” method in addition to other stringent norms for allowing industrial houses to set up banks to ensure that only those with deep pockets and serious intent are allowed entry into the banking space.

india Updated: Oct 17, 2011 23:52 IST
HT Correspondent

Members of a Parliamentary panel on Monday suggested an “auction” method in addition to other stringent norms for allowing industrial houses to set up banks to ensure that only those with deep pockets and serious intent are allowed entry into the banking space.

The Parliamentary Standing Committee on Finance, headed by BJP leader Yashwant Sinha, discussed the draft licencing guidelines for new private banks which the RBI had released in August.

In the draft guidelines, which has been put up for public debate, the RBI has specified a wide range of conditions, including a minimum networth of Rs 500 crore, for companies to be eligible setting up banks in India.

MPs, however, are of the view that besides the rigorous norms of capital adequacy, entities should also participate in a bidding process to demonstrate transparency in selection criteria, the financial strength of the aspirant and also its seriousness, a source, who did not wish to be identified, said.

Under the draft norms companies that have an exposure of 10% or more to real estate and brokerage businesses in terms of revenue or assets are not eligible to seek licences.

To be able to float a bank, a corporation or a non-banking financial company (NBFC) will need a “diversified ownership, sound credentials and integrity”, and a 10-year track record.

The central bank, however, is unlikely to push through with issuing final licences to new banks until Parliament approves the Banking Laws (Amendment) Bill 2011.

The same standing committee is examining the Bill which was introduced in the Lok Sabha in March. The Bill, when legislated, will empower RBI to dismiss a bank's board and force its reconstruction to protect the interests of depositors, shareholders and employees.