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Saturday, March 8, 2014

New bank licences in a few weeks: RBI Governor Raghuram Rajan

 India will hand out licences for setting up new banks in a few weeks after a go-ahead from the Election Commission, Reserve Bank Governor Raghuram Rajan said on Friday.

"Yes, we will ask EC to make sure, because it's an important issue. The process has takenplace last year. In that sense, it's nothing new. But certainly we would want them (EC) to be okay," Rajan said at a press conference, which he addressed jointly with Finance Minister P Chidambaram, after a meeting of the central bank's board in New Delhi.

But the move may face opposition from the principal Opposition party, BJP, which is the favourite to form the next government at the Centre, if opinion polls are to be believed.

"It would be highly inappropriate to issue banking licences not just in view of the (model) code of conduct but also because bank licensing policy is in dispute. My advice to the RBI governor would be to not give out any new licences till a new government is in place," former finance minister Yashwant Sinha told ET.

Over two-dozen aspirants from the private and public sectors, including Anil Ambani-ledReliance CapitalAditya Birla Nuvo as well as nonbank financial companies (NBFCs) such asShriram Finance, Religare, L&T Finance and IDFC, have applied for bank licences.

A panel headed by former RBI governor Bimal Jalan has submitted a report on the eligibility of the candidates. According to media reports, RBI may issue 4-5 licences to set up new banks.

Govt, RBI Must Work Together

IDFC, the Mumbai-based NBFC, L&T Finance, LIC Housing and Southbased NGO Janalakshmi are considered strong candidates to win bank licences. Rajan said a committee including deputy governors and himself as members was examining the applications and the recommendations of Jalan committee.

Speaking at the press conference, Chidambaram, who had made the famous "walk alone" comment in the context of former governor D Subbarao's apparent reluctance to cut interest rates, said he was happy that Rajan in one of his statements had "acknowledged that the government through Parliament will set an inflation target and leave the regulator to find ways and means to achieve that target".

"I think that is the correct approach... I think there is great degree of convergence on the way to go forward... We must achieve both goals of price stability and growth. That is what people of the country want, that is what people of this country deserve... I am sure working together the government and central bank will be able to achieve these goals," he said. A report by a committee headed by Urjit Patel, a deputy governor of the Reserve Bank, has recommended that the central bank chase a 4% consumer inflation target in three years with a 2% price band.


Shortly after the publication of the report, RBI raised interest rates by 25 basis points on January 28 even as headline inflation moderated and industrial production contracted. All this had raised apprehensions of yet another clash between RBI and the finance ministry as the latter has traditionally favoured cutting interest rates to spur growth, currently running below 5%. However, Rajan has subsequently clarified that Parliament and the government would have a say on whether Indian monetary policy should work towards a specific inflation target.

The focus on inflation-targeting had raised expectations that RBI would concentrate on bringing down consumer prices at the cost of growth, even though Rajan has repeatedly said he does not see a trade-off between both.

"RBI is obviously worried about growth as much as it is worried about inflation. The key question is, how (do) we go about achieving high growth with low inflation," Rajan said in response to a query soon after Chidambaram had said it was important for India to achieve both the goals of price stability and growth. "Sovereign has the right to set the target and then the central bank has the mandate to take steps to achieve the target," Chidambaram said, adding he had told the RBI board that the goal must be price stability and growth.

Asked about capital infusion into public sector banks, Chidambaram said it is time to "look for new or innovative" ways to raise more capital for banks. "We are looking at issuing shares to employees. We are looking at rights issue for minority shareholders. There was some discussion about non-voting shares but I think the time has come to look for new or innovative ways to raise more capital for banks," he said.

He, however, added that a decision in this regard will be taken by the next government as "that is the appropriate way to go about it". The minister said India's current account deficit will be contained at less than $40 billion this financial year, well below the record level in 2012-13.

Source:-The Economic Times

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