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Allow stock broking companies to operate banks: ASSOCHAM
November, 05th 2011

ASSOCHAM today said stock broking companies should be allowed to operate banks as they are under the supervision of Securities and Exchange Board of India (SEBI).

"Since the stock broking companies have deep penetration into various geographies ..., they can achieve the objective of financial inclusion, which is one of the key objectives of new banking licensing guidelines issued by RBI," ASSOCHAM said in a statement here today.

As various financial service companies have exposure to broking business, it would be logical to keep a benchmark of ten per cent of revenues or assets on prospective basis, it said.

"In fact, some existing banks have subsidiaries involved in broking business and this will create an uneven playing field for the new banks," ASSOCHAM Secretary General D S Rawat said.

But it would not be feasible to make it mandatory for a new bank to get listed within two years of licensing "this period may be extended to five years," he said.

The minimum paid-up capital requirement of Rs 500 crore should be raised to Rs 1,000 crore within five years of starting the new bank.

"This will help ensure that only serious and resourceful entities are eligible to apply," it said.

The stipulation of non-operative holding company holding minimum 40 per cent of paid-up capital for five years will ensure promoter's economic interest during the start-up period.

"The reduction to 20 per cent in ten years and 15 per cent in twelve years will serve the cause of necessary diversification," ASSOCHAM said.

It appreciated cap of 49 per cent for foreign shareholding in the new bank during first five years, but asked for clarity on the status of limit for foreign institutional investors so that they can plan long-term investment decisions.

ASSOCHAM also said the guideline to open 25 per cent of branches in un-banked areas should be gradual and progressive, which would give time for new players to get their feet right and stabilise financial viability.

"Maybe 10 per cent in first year, 15 per cent in second, 20 per cent in third and 25 per cent in fourth," the chamber said.

ASSOCHAM called for relaxations in statutory liquidity ratio and cash reserve ratio to encourage financial inclusion. "Nearly 60 per cent of Indians do no have a bank account," it said.

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