Mumbai, Oct 7 (Calcutta Tube) A leading industry lobby Thursday suggested to India’s central bank that the minimum capital of the private entrants to the banking sector be pegged at Rs.1,000 crore and non-banking finance companies (NBFCs) also be considered if they meet the guidelines.
The Reserve Bank of India held a meeting with the Indian Bank Association and the Confederation of Indian Industry (CII) as part of a consultative process on the issue of allowing new players in the banking space.
‘Lower capital could result in relatively small banks, which could potentially lead to higher risk taking and more volatile earnings. This in turn could result in lack of focus to financial inclusion and defeat the very purpose of this round of licensing,’ said a CII statement.
The RBI had in August released a discussion paper, seeking views of stakeholders on various issues such as minimum capital requirements for new banks and promoters contribution, minimum and maximum caps on promoter shareholding and other shareholders, and foreign shareholding in the new banks.
The industry representative also said foreign investment could be allowed in the private banks provided ‘a level playing field is applied to both foreign shareholders as well as domestic promoters’.
The central bank had sought views on whether industrial and business houses could be allowed to promote banks and should non-banking financial companies be allowed conversion into banks or to promote a bank.
‘CII proposed that the industrial and business houses that have predominant presence and experience in the financial sector could be allowed to set up banks subject to the due diligence process,’ said the statement.
With regards to NBFCs, CII said it was not in favour of automatic conversion of such entities into banks, but added that NBFCs, whether part of an industrial group or not, should be treated at par with other applicants and should be allowed to promote a bank with fresh capital.