India sets rules for new bank permits in rural push

MUMBAI (AFP) - India on Friday unveiled rules for issuing new bank licences in a push to expand financial services into the country's rural hinterland where hundreds of thousands of villages have no banking outlets.

Ninety per cent of India's 600,000 villages do not have banking facilities, the Reserve Bank of India says, while fewer than half of the country's 1.2 billion people have a bank account.

Private companies, public-sector groups and non-banking financial firms will be eligible to apply for licences for new banks by setting up financial holding companies, the central bank said in a statement.

Groups seeking to set up a bank "should have a past record of sound credentials and integrity, be financially sound with a successful track record of 10 years", the Reserve Bank said.

The minimum capital needed to set up a bank will five billion rupees (S$114 million).

Also, the new banks will have to open at least a quarter of their branches in rural areas with no such facilities, and foreign shareholdings in any new bank should not exceed 49 per cent in the first five years.

The need to set up more banks, especially in rural areas, has become increasingly urgent as the government seeks to pay cash directly to India's poor to ensure more efficient distribution.

Indian conglomerates like the Tata Group and the Anil Ambani Reliance group, which already own financial businesses, have voiced interest in setting up banks.

The Reserve Bank is seeking to follow a path of "financial inclusion", embracing swathes of rural India which have little access to banking services, the bank's governor Duvvuri Subbarao said.

No new Indian bank has been set up since the private Yes Bank in 2004. Yes Bank now is a leading industry player.

India currently has just 26 state-run, 20 private and 40 foreign banks.

Another 2,200 rural and co-operative banks cover other parts of the country.

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