RBI grants in-principle approval to IDFC, Bandhan for new bank licences

RBI grants in-principle approval to IDFC, Bandhan for new bank licences.

The Reserve Bank of India (RBI), the central banking authority of the country, granted “in-principle” bank licences to Infrastructure Development Finance Co (IDFC) and micro-finance lender Bandhan Financial Services Ltd, ending a four-year process that left many applicants including Reliance Capital and L&T Finance disappointed. But the regulator’s promise of keeping a window open permanently for bank licences in future, rather than inviting applications at intervals, has kept their hopes alive.

IDFC_BankIndia Post could still get a licence with the regulator saying it may issue one to the institution with the largest presence across the country after discussions with the government.

The announcement came after the Election Commission allowed the central bank to go ahead with the move.

The in-principle approval is valid for 18 months during which IDFC and Bandhan will have to meet all RBI rules to secure a permanent licence and begin banking activities.

“RBI’s approach in this round of bank licences could well be categorised as conservative,” the central bank said in a statement. “At a time there is public concern about governance, and when it comes to licences for entities that are intimately trusted by the Indian public, this may well be the most appropriate stance.”

bandhan_bank“The point we want to make is the banking licence in this country is a measure of trust and you have to deserve that trust,” RBI Governor Raghuram Rajan had told reporters on Tuesday.

These are the first licences to be awarded since 2003-04 when YES BankBSE -1.94 % got one and Kotak Mahindra BankBSE -1.21 % was allowed to convert itself into a bank from a finance company.

IDFC funds big-ticket projects such as power plants and roads while Bandhan lends small amounts to the poor.

Both these companies were seeking a licence because a bank has access to lower cost deposits in the form of savings and current accounts. A finance company has to borrow from banks, or sell bonds to raise funds, forcing them to charge more from borrowers.

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