The Indian Express, a provider of business news in India, recently speculated that the Reserve Bank of India (RBI), the country’s central banking authority, will issue at least three new banking licenses either in the second quarter of 2014 or near the end of the year. RBI established official guidelines for new bank licenses and invited applications from private sector financial and nonfinancial institutions in February 2013. A committee commissioned to review and assess the applications received 26 applications from brokerages, nonbank financial corporations, microfinance institutions and multi-sector conglomerates. The committee’s findings were submitted to the RBI in February 2014, and a short-list of an undisclosed number of candidates was identified.
While the timing and modality of the new licenses remains uncertain, if issued, they would be the first new banking licenses in India since 2004. Over the last two decades, RBI has issued a total of 12 commercial banking licenses for the private sector[3] in two waves: 10 licenses were issued in 1993 and two more in 2003 and 2004.
RBI reported total reserves of USD 263 billion as of February 14, 2014.
By A’kos Szebeni, Research Associate
About Reserve Bank of India (RBI)
Established in 1935, the Reserve Bank of India (RBI) undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While non-banking financial companies such as for-profit microfinance institutions operate under RBI regulations, the responsibility for inspecting agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5-percent stake in the outfit, RBI owns a 0.5-percent stake in NABARD as of March 31, 2013. RBI reported total reserves of USD 263 billion as of February 14, 2014.
Sources and Additional Resources:
[1] The Economist, “India attempts to reach the under-banked,”
http://www.eiu.com/industry/article/1581564342/india-attempts-to-reach-the-under-banked/2014-02-21
[2] RBI press release, “Guidelines for Licensing of new Banks in the Private Sector,” http://rbi.org.in/scripts/bs_viewcontent.aspx?Id=2651
[3] The Indian Express, “RBI likely to give banking licenses ‘on tap’ basis,”
http://indianexpress.com/article/business/banking-and-finance/rbi-likely-to-give-banking-licences-on-tap-basis/
MicroCapital, March 8, 2014, “Reserve Bank of India (RBI) Considers Relaxing Capital Requirements for New Bank Licenses,”
https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-considers-relaxing-capital-requirements-for-new-bank-licenses/
MicroCapital, March 7, 2014, “Reserve Bank of India (RBI) Unfixes Microloan Interest Rate Cap to Vary Based on Cost of Funding,”
https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-unfixes-microloan-interest-rate-cap-to-vary-based-on-cost-of-funding/
MicroCapital, March 11, 2013, “Reserve Bank of India (RBI) Releases Regulations Governing New Bank Licenses,” https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-releases-regulations-governing-new-bank-licenses/
MicroCapital. December 19, 2012, “Reserve Bank of India Projected to Issue Banking Licenses to L&T Finance Holding, Shriram Group, Mahindra & Mahindra Financial Services,” https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-projected-to-issue-banking-licenses-to-lt-finance-holding-shriram-group-mahindra-mahindra-financial-services/
MicroCapital Universe Profile: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tikiindex.php?page=Reserve+Bank+of+India+%28RBI%29
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