Tuesday, August 2, 2016

RBI Issues Guidelines for “On Tap” Licensing of Private Universal Banks

In the past, the Reserve Bank of India (RBI) has been following a “stop and go” policy for licensing of new banks in the private sector. Under this policy, and on the last occasion in 2014, two private sector banks were granted licences to operate banks. However, this policy has been under review and discussion over the last few years. Consequently, the RBI in May this year issued the Draft Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector. A guest contributor previously analysed various aspects of these Draft Guidelines on this Blog.

Yesterday, the RBI issued the final version in the form of the Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector. The final guidelines are essentially on the same lines as the draft issued in May. This development is likely to constitute a significant change in the private sector banking industry. Unlike the previous policy wherein the RBI would open up the possibility of licensing banks during specific windows, the new policy will enable banks to submit applications for licensing on an ongoing basis. However, this is subject to significant restrictions, which will also preclude conglomerates from venturing into the banking industry, and is largely aimed at enabling other financial services players such as non-banking finance companies in their entry into the universal banking sectors.

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