Bank License

A good initiative by RBI by rationalizing the process of issuing bank licenses. Earlier RBI used to open short windows for accepting application for new bank licenses. If you miss the window once you will have to wait for many years before next opportunity arises. However, according to the new rules RBI plans to accept the applications on a continues basis. This is significant shift in policy by RBI. I believe we can give this credit to Prof. Raghuram Rajan, Governor of RBI, for this change.

Find an article on the topic in mint. What’s interesting is the whole article is that large groups have been excluded from setting up banks. A large literature in academic finance talk about how business groups behave opportunistically (use the keyword “Tunneling by business groups” in google scholar to find relevant literature). The 2008 crisis has shown that how banking crisis can affect the whole economy. Hence it makes sense for RBI to not accept applications from large business groups which can have conflict of interests.

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Author: Bobbur Abhilash

I am a fourth year Doctoral student in the Finance and Control Department at IIM Calcutta.

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