What is On-tap bank licensing policy?

The Reserve Bank of India (RBI) in May second week has issued draft guidelines for the new ‘on-tap’ bank license policy.

An 'on-tap' facility would mean the RBI will accept applications and grant license for banks throughout the year. The policy allows aspirants to apply for universal bank license at any time, subject to the fulfillment of the set conditions. It is for the first time in post nationalization phase that there comes such an open bank license policy.

There are several conditions for applying for new bank licenses set for individual applicants and entities like NBFCs. Stipulation of shareholding, fit and proper criteria for promoters etc. are some of them.

At s per the policy, industrial houses can’t apply for banks.

With the present policy, the previous practice of periodic invitation of bank license application will come to an end. So far, the RBI has invited applications and permitted new private sector banks in 1993, 2004 and in 2014. Last time, Bandhan and IDFC got bank licenses. The new license policy is designed for universal banks. Banks that can perform the whole set of allowed services and products under universal bank license. At present, most of the public sector banks, private sector banks and foreign banks have universal bank license.

Similarly, the RBI has sanctioned permission to payment banks and small finance banks in 2014. These banks have got a differentiated bank license where they can provide only selected services.