Under the supervisory functions Granting licence is an important task of Reserve Bank of India. Reserve Bank of India has improved its act of supervision and regulations, since its establishment in twenty tears quite well. It has liberalized economy and financial system which has helped it in global economic crisis. But now according to IMF India requires improving on its financial system, crisis preparedness and supervision.
Recently IMF or international monetary fund has cautioned India from granting licence to corporate entities, who desires to step into the business of commercial banking. IMF said that there is a risk of outweighing the benefits of creating more banks is associated with it.
IMF’s Financial System Stability Assessment Update declared it might be judicious for India to first put set up and progress sufficient encounter in achieving an inclusive framework for the reason before thinking about the entrance of combinations into banking
IMF also stated that the lawful, operational and administrative schema for solidified supervision of both bank-advanced group and money related combinations is still missing some vital components, while additionally hailing concerns regarding the absence of aggregate freedom for the Reserve Bank of India from legislature impact. This cautioning goes before the wanted discharge of the last set of bank licensing guidelines by RBI, needed to kick-begin the method of new private part elements getting licences to open business banks.
In the recent past Parliament passed the Banking Laws (Amendment) Bill, 2011, enabling the central most banks to supersede bank boards and examine partner associations of bank promoters. The section of the Bill had been a nexus precondition set by RBI to begin issuing new bank licences. Reserve Bank of India had been hesitant to give banking licences to associations that might utilize the lenders subsidizes for the profit of other groups and deny finances to opponents, and had looked for the ability to supersede boards of potential maverick banks. IMF stated that the Universal experience underpins prohibiting industrial houses from advocating and owning banks.
International monetary Fund also mentioned that the consolidated supervision structures and competencies are feeble yet for bank-headed groups in the larger piece of the pie of purviews assessed. It also said that frameworks for the oversight of budgetary combinations will persist to be a ‘work in progress’ at the global level. To this, a senior finance official stated that sufficient protections would be set up to guarantee, that the new banks don’t loan to group companies. On state of obscurity the official also added that the new banks should not be permitted to loan to group companies. In light of this, they have kept in touch with the Reserve Bank of India that even associations with introduction to real estate and stock broking might additionally be thought about.