A High Level Advisory Committee (HLAC) was set up by Reserve Bank of India (RBI) on October 2013 under the Chairmanship of Dr. Bimal Jalan to screen the applications for grant of bank license under the RBI guidelines issued on February 22, 2013 for Licensing of New Banks in the Private Sector and to recommend licenses to only those applicants who comply with the guidelines. Bimal Jalan Committee has submitted its report to RBI.

RBI, vide its Press Release dated April 2, 2014 has granted ‘in principle’ approval to two applicants viz IDFC Limited and Bandhan Financial Service Private Limited, to set up banks under the Guidelines for Licensing of New Banks in the Private Sector issued on February 22, 2013. These two applicants were also recommended as suitable for grant of ‘in principle’ approval by HLAC. HLAC had also recommended that in the case of Department of Posts which has applied for license, it would be desirable for the RBI to consider the application separately in consultation with the Government of India. The RBI has accepted the recommendation of HLAC.

RBI released a Discussion Paper on the mode of presence of foreign banks in India on January 21, 2011. The ‘Scheme for setting up of Wholly Owned Subsidiaries by foreign banks in India’ was released on November 6, 2013 after taking into account the feedback received on the Discussion Paper from various stakeholders and factoring in the lessons from the crisis which favours a subsidiary mode of presence from financial stability perspective.

This information was given by the Minister of State for Finance, Smt. Nirmala Sitharaman in written reply to a question in Lok Sabha today.

Bank licensing: in-principle approvals and subsidiary mode for foreign banks reinforce stability-focused entry norms in private sector. Licensing of new private sector banks was conducted via a High Level Advisory Committee applying the RBI Guidelines, whose recommendations led to in-principle approval for two applicants and a recommendation that the Department of Posts' application be considered separately with Government consultation. Regulatory policy on foreign banks' mode of presence moved toward a subsidiary model, justified on financial stability grounds and informed by stakeholder feedback and a prior Discussion Paper.