India to issue more banking licenses

The Indian government has reassured the banking sector that the Banking Regulations Act will be amended to include rules liberalizing the issuance of new banking licenses.

The government and the Reserve Bank of India are reported to be finalizing the new rules on banking licenses. Finance Minister P. Chidambaram gave the reassurance that necessary amendments will be made in the banking act.

“We have discussed this with RBI, and the central bank has agreed to take the process forward. I have assured RBI that we will do our best to get the amendment Bill passed in the winter session of Parliament,” Chidambaram said.

The banking regulator released the draft rules on new banking licenses in August 2011. A year later, RBI released the comments and feedback received on the draft rules.

The government in March 2011 approved the introduction of a Banking Laws Amendment Bill 2011 in Parliament. Among other changes, the bill seeks lift the 10% voting rights limit in private sector banks and pave the way for RBI to give additional banking licenses to private sector players.

The proposed bill will amend the Banking Regulation Act, 1949 so as to remove the voting rights cap for private sector banks. The legislative intent is to make voting rights commensurate with economic ownership.

Reports indicate that the Banking Regulation Act will be amended to prescribe a minimum capital of Rs 1,000 crore for every private sector bank. The current capital requirement is Rs 300 crore. RBI has proposed some amendments to the Banking Regulation Act including a change in the minimum capital requirement.