business

Updated: Apr 03, 2014 01:03 IST

Ending months of speculation and regulatory scrutiny, the Reserve Bank of India (RBI) on Wednesday said that it has given “in-principle” approval to Mumbai-based non-banking finance company IDFC and Kolkata-based microfinance organisation Bandhan Financial Services to set up new banks in the country.



The approval, which will remain valid for 18-months, comes a day after the Election Commission allowed the RBI to go ahead with the process as it did not violate the model code of conduct that prevents authorities from taking decisions that can influence voters ahead of polls.

RBI said the application of state-run India Posts to set up a commercial bank will be considered separately after consulting the government.

HT had first reported in February that IDFC and India Posts were among those that could be the first ones to receive a licence to set up a bank.

“The RBI took a view of the “fit and proper” status of the applicant,” the central bank said adding that the approvals have been given based on the recommendations of a four-member external panel headed by former RBI governor Bimal Jalan.



“We are very happy…13 years of hard work has paid off…we are serving the people and we will continue to do that,” Chandra Shekhar Ghosh, chairman and managing director of Bandhan told HT.

Bandhan will be the first micro-finance institution to set up a bank. Ghosh said the company has capital reserve of `1,100 crore while as per RBI norms, applicants needed a minimum capital reserve of `500 crore.

The RBI’s objective to allow new banks aims to spread financial inclusion in a country where more than four out of 10 adults do not have bank account.

Financial inclusion has a direct correlation with growth. As banks opened up branches in remote areas after nationalisation in 1969, India’s savings and investment rate rose from 13% to 23%.

“Bank licenses are critical for financial inclusion,” Chandrajit Banerjee, director general, CII, told HT.



Yes Bank and Kotak Mahindra Bank were the last ones to get bank licences in 2003-04.

RBI received 27 applications in July 2013 including IFCI, Reliance Group, Aditya Birla Group, L&T Finance Holdings and Muthoot Finance among others. Tata Sons and Videocon Group later withdrew their applications.