Finance Ministry Backs Up Realty Firms For Running Bank

Supporting the realty firms, Finance Ministry opined that RBI can give them license to run banks. Finance Ministry made the comment while speaking about the new licensing policy of RBI.

Finance Ministry, while commenting on the RBI’s plan over giving new bank licenses, said that the realty firms also should be permitted to run banks. The ministry opined that the Reserve Bank of India (RBI) could allow the real estate firms to own and run private sector banks in India.

The existing RBI- Draft Norms, initiated in 2011, do not permit any realty firms to run banks in India. As per the RBI- Draft, any firm who’s 10% or above of income is generated from real estate business or broking is not legible for acquiring banking–license.

The RBI- Draft of 2011 further explains that real estate business is highly risky and it is against the nature of banking. The draft considers both real estate and broking firms are not suitable for banking -model business. These businesses are inherently risky. There has been a global movement to free banking from other forms of business, it adds.

However the Finance Ministry added that the realty firms can be given the permission to run banks only on certain conditions. The ministry added that the subsidiary firms shall not be given any loans from these banks. Neither any of the group companies or the promoters of the bank shall be given any sort of loans nor should the Bank CEO promote any such loans to its subsidiary firms.

Finance Ministry added that in such cases the gaining of loans will be less risky for the subsidiary companies. The risk will be lower and any subsidiary will be capable of acquiring bank loans easily. So to avoid the situation, they shall never be permitted to attain loans from the banks. However RBI stated that the apex bank’s previous experience with the brokers has never been satisfactory. This is also a big issue in the context, the apex bank replied.