Rejected banking licence applicants can buy strategic stake in banks: RBI Dy Governor

In a fresh development, banking regulator, Reserve Bank of India (RBI) has underscored that any entity which failed to make the cut for banking licence could buy a strategic stake in a bank and this would not amount to back-door entry into banking system. As per RBI’s deputy governor, R Gandhi, any entity that wishes to acquire more than 5% stake in a bank is required to apply to the RBI, which in turn will examine such applications on merit basis. Interestingly, this development comes right after non-banking finance company L&T Finance Holdings, which was one of the 25 applicants for new bank licenses and could not make the cut, was reportedly said to be in talks with YES Bank to buy out the promoters’ stake of about 23%. The NBFC reportedly has also approached the RBI informally. Besides, RBI’s deputy governor also unveiled the guidelines on differentiated bank licences, as well as on ‘on-tap’ licences, which could be expected by the end of this year and would be departure from the current practice of granting universal bank licences alone. Differentiated bank licences, one of the key recommendations of the Nachiket Mor committee on financial inclusion, refers to licences given to banks specialising in key functions, i.e. either lending or borrowing, while “on-tap licensing” means any entity which is planning to start a bank which could apply to the RBI at any point as against the current system where they apply when the window opens. After issuing two in-principle bank licences last month to infrastructure financier IDFC and micro lender Bandhan, RBI Governor Raghuram Rajan averred it was possible some of the applicants for licences were more suited to operate differentiated banks, not universal banks.