Saturday, February 26, 2011

More licences with strict regime

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Finance Minister, Mr. Pranab Mukherjee, arrives to address the media after Economic Survey being tabled. - Photo: Kamal NarangMUMBAI: Corporate houses that  were anticipating some new accelerated directions from the Government on the issue of allowing them to enter banking sector clearly had all the reasons to be happy about. The Economic Survey, tabled by Finance Minister Pranab Mukherjee in parliament on Friday, has suggested that more banking licenses should be granted with a caveat that the regulatory frame work has to be tightened. Addressing the specific proposed move, the survey specified that industrial houses should be given banking licenses to promote the goal of financial inclusion, however very strict provision for avoiding conflict of interest should be put in place.Justifying the proposed new guideline, the 2010-11 Survey said that the move was very important considering that banking facilities is one of the main objectives of the inclusive development agenda.“While providing banking access, the issue of regulatory robustness for the banking sector should not be compromised, therefore, the issue of providing eligibility norms for new entities to operate as banks is of paramount importance,” the survey said.The move to allow private industrial houses including NBFC’s to apply for banking license was mooted by the Pranab Mukherjee in the last budget, after which the Reserve Bank of India had brought out a discussion paper and invited comments from interested groups. Industry bodies had overwhelmingly supported this move and stressing that all industrial houses irrespective of their main business should be given a fair chance to apply for licenses for new banks. Swati Piramal, President of ASSOCHAM recommended a liberalized approach to RBI to award licenses for new banks to mop up funds that are needed to cover the large number of Indian citizens who do not currently have access to banking services.There are a few others who are opposed to the idea. According to Cherian Varghese, former chairman of Union Bank of India, allowing industrial houses to set up new banks will result in corporates dominating the economy and influencing policy.Leading corporate groups like Reliance Capital, Aditya Biral Financial Services Group, IDFC, IL&FS and several others are eagerly awaiting to enter the banking sector.
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