Most of the corporate houses who have applied for a bank license already have a Pan-India presence and their deep pockets and sophistication should help them in meeting the regulator's objective. The current thrust of RBI on financial inclusion might also prove to be a huge advantage to the license seekers.

The Finance Ministry has opened up the possibilities for fresh banking licenses to private sector players, and the old debate around `agency costs' has come to haunt us once again. The issues are far more serious and complicated this time, and in the light of the global financial crisis, the regulator doesn't want to take any chances. Although the thought of issuing fresh licenses is also a testimony to the fact that the Indian banking sector has witnessed a smooth sailing in the turbulent times and has emerged almost unscathed from the global financial crisis. Most of the points on which the RBI has laid emphasis are on expected lines, like capitalization requirements, caps on promoter holdings, eligible promoters, foreign shareholding, etc. Also, the various category of applicants may interpret these requirements in their own manner. The applicants typically fall under five categories, viz., corporate or industrial houses, financial conglomerates (including development financial institutions), NBFCs, the communities (including NRIs), and the state government-owned entities. In almost all these categories, the RBI's experience has been mixed, for example, most of the NBFCs who got bank licenses earlier have either sold out or merged with larger banks. The community banks have struggled in drab times and have not been able to demonstrate genuine performance. Then applicants like SIDBI, LIC and IFCI are eligible and have a very good chance of getting a license.

The most interesting debate is around industrial houses seeking licenses to operate a bank. Do they have a strong case, is the question. At the center of the debate is the issue of the promoter's equity holding in the bank. Under the present norms, promoters are required to hold 40% of paid-up capital at the time of issue of a bank license, with a lock-in period of five years. Thereafter, promoters are required to dilute their holding to 10% over a suitable time frame. Promoters may be permitted to hold up to 30% of a bank's equity, subject to their meeting `fit and proper' criteria.

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