The markets are abuzz with hope of new entrants to the banking sector as all the prerequisites needed for the Reserve Bank of India to start the process of issuing bank licences are in place with the Banking Amendment Bill being passed by the Lok Sabha on Wednesday.
But the industry may still have to wait as long as 12-18 months for the first of the new licences to be issued, analysts say.
The RBI is now required to issue final guidelines on new bank licences soon. Given that the central bank has placed a rigorous evaluation process for entrants, it could well be at least 12 months before the first licence is issued.
?The final guidelines for new banking licences likely to come out soon considering the consultative approach, which RBI has taken with the stakeholders. Since RBI has put a rigorous evaluation process for applicants, it is likely to take at least 6-12 months for a new licence to be issued to any entity, once the guidelines are out,? said Monish Shah, Deloitte Haskins & Sells? India director.
The corporate houses that wish to set up banks will need to have a successful track record of 10 years in their business and RBI will seek feedback even from enforcement and investigative agencies such as the Income Tax and CBI before issuing licences, as per the draft guidelines. Further, RBI is likely to form an internal committee to scrutinise the applications it receives.
Ashwin Parekh, National Leader-Global Financial Services, Ernst & Young, said it may take a year or two for the new entrants to set up banks.
In 2001, when RBI revised the guidelines for new bank licences, the first of the licences had taken at least nine months to be issued, said an analyst at a foreign bank.
RBI had first issued guidelines to give out bank licences to private companies in 1993. The Banking Bill 2011 itself has gone through 18 months of discussions, flipflops, political logjam and frictions before it was passed by Lok Sabha on Wednesday.
In a run up to the Bill being presented in Parliament, the government officials had said RBI can issue licences even without the amendments to the Banking Act as certain provisions in the companies Act give regulator powers to do so. C Rangarajan, the chairman of the PM?s advisory council had said RBI can consider old regulations to issue licences.
However, RBI governor D Subbarao in several public interactions said amendments to the Banking Act 1949 is a necessary precondition for issuing licences. RBI had issued draft guidelines in August 2011 and had asked for feedback from stakeholders over two months.
