RBI should form guidelines before grant of licences: EY

Ashvin Parekh, partner, Ernst & Young, in his reaction over the passage of the Banking Bill in the Lower House, explains that with the RBI being accorded the necessary powers should formulate clear and adequate guidelines before kickstarting the process to grant licences to entities that wish to operate in the banking sector.

Below is an edited transcript of the reaction on CNBC-TV18

Q: What initiatives, in your opinion, should the regulator take with regards to the Bill?

A: I would react quickly to the time table discussed. Now that the regulator has the necessary powers it is not strictly essential to rush the whole thing up. The regulator should first frame the policy guidelines on governance and then announce the entire process. We know that by time the process begins, various authorities are admitted into that process and an approval takes place, the new banks will take at least 1.5-2 years to start becoming operational. So the guidelines are critical as the regulator has got the necessary powers.

Q: Do you think that the announcing of the final guidelines and setting up the committee to invite proposals be vetted and the grant of the licence would occue within Subbarao's regime?

A: No, there maybe an increase in the number of entrants into the banking sectors as compared to the kind of response received in 1992. So the committee will have to really take each and every application to begin with, verify the guidelines by a committee which will thereafter vet each and every application to make sure that all the necessary conditions which are laid out are all met with. So it is a lengthy process.

Q: Do you estimate it is likely by  September or October? You think by the end of calendar 2013, the first list of successful candidates should be out?

A: Exactly, and then I wouldn't really worry too much about the right entrants are admitted into the banking system.

Q: Do you think they will give over half a dozen licences?

A: The key issue is capex and therefore I do not see many entrants. I don't expect more than 4 or 5 licences to be granted.

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