Finance Ministry cleared the Reserve Bank of India's Draft Guidelines on New Bank Licences

The Indian Ministry of Finance on 27 May 2011 cleared the Reserve Bank of India's draft guidelines on new bank licences with a rider that the existing 74% cap on foreign direct investment (FDI) be retained.

The apex bank had proposed capping FDI in new banks at 49% in the first 10 years and is likely to make the guidelines public and may seek comments from all stakeholders again.

The ministry had asked the central bank to set up a special committee to vet proposals for banks through a three-stage process. First, the RBI will screen all applications. Then in the second stage a high-level advisory committee comprising experts in banking and finance will vet those applications. This committee will finally submit its recommendations to the RBI, which will decide whether licences should be given or not. The RBI's decision will be held final and will be valid for one year from the date of granting in-principle approval.

In case of irregularities regarding the promoter of the companies or their associated groupsbeing discovered, the RBI can impose additional conditions or withdraw the in-principle approval. The RBI has built in enough safeguards to ensure that industrial houses getting banking licences maintain enough distance from promoter group entities.