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C Rangarajan urges RBI to introduce entry norms for issuing new banking licenses

18 Oct 2012 Evaluate

With an attempt to make the banking industry more competitive, Chairman of Prime Minister's Economic Advisory Council C Rangarajan has urged Reserve Bank to come up with entry norms for issuing new banking licenses. He pointed out that periodic entry of new banks is inevitable to ensure competitiveness in the domestic banking system, as closed system can only make an oligopolistic market.

The former RBI governor cautioned that such situations have to be avoided, and proposed the central bank to set up criteria for new entrants. He has urged that the decision to allow new entrants should be taken by considering the economic needs over the next several decades, for ensuring the sector’s competency.

The apex bank, which had issued draft norms for new banks last year, is yet to come up with the final guidelines as it sought statutory powers to supersede the boards of erring banks, which can happen only through an amendment to the Banking Regulations Act, pending before Parliament.

Rangarajan also affirmed that new capital adequacy regulations such as Basel III is necessary in the long term prospects, and indicated that the RBI's projection on Basel-III capital requirement in its annual report is an underestimate.

While, the RBI Governor in the financial stability report released in August had pegged the capital need of banks at about Rs 1.75 trillion by March 2018 to conform to Basel III.  He also blamed economic slowdown for the rising NPAs.

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