Differentiated Licensing for new Banks open up better prospects.. for litigation?

After RBI received 26 applications for Bank licenses, discussions have been going on on whether it is desirable to issue a large number of licenses or restrict it to a few. Many corporates who perhaps were the favourites of the Ministry of Finance were considered incapable of meeting the Financial Inclusion criteria which RBI was considering as the ey.

Also the presence of share brokers, gold loan companies, exchange brokers,real estate agents etc in the license aspirant’s list made the whole issue very murky.

Even the public sector companies were not considered capable of running Banks.

It was therefore difficult for RBI to seriously consider more than 6-8 applications even for preliminary screening.

It now appears that some formula has been found to accommodate more licenses by introducing a concept of “Differentiated Licensing” where some of the essential obligations such as priority sector lending etc would not be imposed on all the licensees.

It is still too early how the existing licensees would react to this differentiated licensing since it may saddle them with the unremunerative part of banking business while the new Banks will walk away with the cream of the business.

There is no doubt that vested interests may be active to get the licensing norms diluted. However if the licensing norms now considered are significantly different from the basis on which the licenses were called for, there could be a controversy like the 2G scam where Supreme Court may be moved to cancel the licenses issued as discriminatory against those who stayed away from applying based on the norms announced at the time of calling for applications.

The new RBI Governor now has a difficult task of remaining fair under political influences. Otherwise we may see a classic clash of RBI the regulator and the Supreme Court in the days to come while the politicians would be laughing all the way to their Swiss Banks.


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About Vijayashankar Na

Naavi is a veteran Cyber Law specialist in India and is presently working from Bangalore as an Information Assurance Consultant. Pioneered concepts such as ITA 2008 compliance, Naavi is also the founder of Cyber Law College, a virtual Cyber Law Education institution. He now has been focusing on the projects such as Secure Digital India and Cyber Insurance
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