Realty Firms Can Run Bank; Finance Ministry Opines

by Paul Joseph on January 30, 2013 · 0 comments

Backing realty firms up, Finance Ministry said that RBI could permit realty firms to run banks in the private sector. Finance Ministry made the comment while talking about RBI’s new licensing policy. While speaking about the new licensing policy of Reserve Bank of India (RBI), Finance Ministry  said that the realty firms also should be given permission to run private sector banks. The RBI- Draft Norms came into existence in 2011 prohibits realty firms and broking firms from running banks. The RBI- Draft says that any firm, acquiring ten percent or above of its total income from real estate business , is not permitted to run banks. The Central Bank of India said that the previous experience with the broking firms and realty firms have never been satisfactory. Moreover the apex bank stated that real estate and broking business are inherently risky and not suiting the sort of banking business. RBI adds that the real estate business is against the nature of banking. Accordingly these businesses – both real estate and broking, are contrasting to the banking-model business. RBI brought to the light the global movement to relieve banking from all other businesses. Finance Ministry suggested that these firms can be given license to run banks only under a number of conditions, so as to make banking and gaining loans an easier task for the subsidiary firms of the promoter. Ministry added that no subsidiary firms of the promoter shall be given any sort of loans. This will reduce the risks of the subsidiary firms to attain loans. However it shall not be promoted and the Bank CEO should see that none of the partners or subsidiary firms is granted loans. In case if the subsidiary firms and partner firms are granted loans from the banks, then they will be able to raise funds easily. This shall not be happened as it is against the nature of pure banking.

[via India Real Estate Monitor]

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