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Pranab Meets SEBI, RBI Heads
March, 12th 2010

Granting bank licenses to private entities and Non-banking financial companies, smooth conduct of Government borrowing next fiscal and investor safety issues topped the agenda in Finance Minister Pranab Mukherjees meetings with the heads of Reserve Bank of India and Securities and Exchange Board of India Mar. 6.

Mukherjee, who had announced in the Budget that new private entities and NBFCs would be considered for entry into banking, discussed the issue with the apex bank which will be the ultimate authority on licensing new entities.

I said that when the proposal (for new licenses) will come it will be considered in consultation with the Reserve Bank of India...of course, they (new entities) have to meet the criteria (laid down) by the RBI, Mukherjee said.

Following the Budget announcement, many corporate groups including Reliance, Aditya Birla group, Tata Group, Bajaj and Muthoot, had expressed their intention to apply for a banking license, once the RBI came out with its new set of guidelines.

The RBI has not issued any new bank licenses after 2004, when it permitted Yes Bank to start operations.

RBI Deputy Governor Usha Thorat had made it clear after the Budget that the central bank would not deviate from its long-followed principles of ownership and governance while framing the norms for new bank licenses.

We have to work on the eligibility criteria. Its a long process and will take some time. I think the basic principles of ownership and governance will remain unchanged because they are absolutely sacrosanct and very useful. They have stood the test of time, Thorat had said.

Concerns also exist about the appropriateness of allowing business groups to enter banking as it could result in a conflict of interest.

The Finance Minister also discussed the governments borrowing program for FY11 with the RBI Governor. Both parties exuded confidence that the borrowing would be conducted smoothly and that the program would not be allowed to crowd out private demand.

The borrowing program would be done in consultation with the RBI, the Finance Minister said, adding we have assured RBI that government borrowings will not affect access to private credit.

The governments gross borrowing in FY 11 is likely to be around Rs 4.5-lakh-crore, which is marginally higher than this years.

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