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Wait for new pvt banks gets longer

The wait for new private banks might just get longer.

india Updated: May 09, 2011 02:22 IST
Mahua Venkatesh

The wait for new private banks might just get longer.

The Reserve Bank of India (RBI) and the government are unlikely to push through with the final guidelines for issuing licences to new banks until the Parliament approves the Banking Laws (Amendment) Bill 2011.

"The passing of the Bill is a necessary condition that will have to be fulfilled before guidelines for new bank licences are finalised," said a finance ministry official on the condition of anonymity.

A Parliamentary standing committee is examining the Bill, which was introduced in the Lok Sabha in March. The Bill may come up for approval in Parliament only in the winter session, said sources.

The Bill, when legislated, will empower the RBI to dismiss a bank's board and force a reconstruction to protect interests of depositors, shareholders and employees. Conferring the RBI with such powers will allow the central bank to take swift action if it suspects that the board is not functioning objectively or pushing for decisions favouring promoters of the bank.

At present, the RBI is not empowered to supersede a bank's board, but can force an amalgamation or a merger among banks. http://www.hindustantimes.com/images/HTPopups/090511/09_05_11-buss-20b.jpg

The Bill will also allow the RBI to seek details of associate enterprises of banking companies.

The RBI has prepared draft guidelines to allow private players in the banking sector and is awaiting comments from the finance ministry.

"It has become necessary for the RBI to be aware of the financial impact of the business of such enterprises on the financial position of the banking companies," the Bill stipulated in is statement of objects and reasons.

"This is necessary before allowing industrial houses to set up banks," the official said.

The Adiyta Birla Group, Religare Enterprises, the Tatas and Reliance have shown interest in entering the banking sector.