ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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RBI's Conservatism Triumphs

The central bank has, with good reason, taken the safe path on the issue of new bank licences.

It was supposed to be a big bang; it turned out to be a whimper. Out of the 25 applicants for bank licences, only two have received “in-principle” approval from the Reserve Bank of India (RBI). When the process was on, RBI Governor Raghuram Rajan was at pains to emphasise that not much purpose would be served by going through the process only to issue a couple of licences. A few months ago, the market expectation was that four to six licences would be issued. The RBI’s press note on the subject explains its decision. “RBI’s approach in this round of bank licences could well be categorised as conservative. At a time when there is public concern about governance, and when it comes to licences for entities that are intimately trusted by the Indian public, this may well be the most appropriate stance.” It does appear that the RBI governor’s thinking on the subject has evolved over the past few months.

The regulator was careful to get the Election Commission’s approval for the announcement. And it chose to brush aside suggestions from the Bharatiya Janata Party (BJP) that it should defer the announcement until after the elections. In the event, the RBI should be gratified that its approvals have not evoked much controversy. The concern about announcing licences at this point was primarily because of the presence of corporate houses amongst the applicants. This is a hugely controversial issue per se. Moreover, the grant of a licence to one or more houses would have raised questions about why some houses were given licences and not others, whether the intention was to appease the government of the day or the government-to-be.

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