Brokerages, realtors free to run banks: RBI

Says fit and proper guidelines in place

Brokerages, realtors free to run banks: RBI

Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty on Tuesday said the central bank is open to letting realty and brokerage companies to apply for banking licences if they meet the "fit and proper criteria".

Responding to a query, Chakrabarty told media on the sidelines of an event, "These (real estate and brokerage firms) are all legitimate businesses...if they can demonstrate that they satisfy all requirements and all the concerns how can you deny them opportunity to set up banks..., if this is not in the guidelines, then it is open to them definitely." With this, RBI was reacting officially for the first time after it unveiled the final guidelines for new banking licences on last Friday.

It is only apparent that the final guidelines by the apex bank has deviated from its initial stance exemplified in the draft norms issued in August 2011, which had virtually barred realtors and brokerages from its eligibility criteria. The draft guidelines had stated that "there are certain activities like real estate and capital market activities, in particular broking activities, which apart from being inherently riskier, represent a business model and business culture which are quite misaligned with a banking model."

Asked about the number of licences to be issued, the senior-most among the four RBI deputy governors said the number of new banks will depend on the eligible candidates and it is too premature to give a specific count now. "Let's see how many people are eligible first and how many of them will be fit and proper. If nobody is fit and proper, then what is the use of giving licences? Right now, it is too premature to discuss the number of licences to be issued," said Chakrabarty.

The fit and proper guidelines are any regulator's master stroke, said he adding, "It is any regulator's master stroke, why only RBI. And that is why fit and proper guidelines have been evolved..."

It may be noted that on Friday last, RBI released the final guidelines for new banking licences with an emphasis that an applicant should be "fit and proper" for getting a licence and have a 10-year impeccable track record. It has allowed business houses, state-run enterprises and non-banking finance companies to apply for licences to set up banks.

Further, Chakrabarty continued, the new banks will have to find businesses in rural areas and SME space, among others, as the priority sector lending norms will be the same for them like others. Dwelling on consolidation in the banking sector, Chakrabarty said the RBI may come up with a paper addressing the concerns.

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