The Reserve Bank of India (RBI) has decided  to grant “in-principle” approval to two applicants viz., IDFC Limited and Bandhan Financial Services Private Limited, to set up banks under the Guidelines on Licensing of New Banks in the Private Sector issued on February 22, 2013 .The “in-principle” approval granted will be valid for a period of 18 months during which the applicants have to comply with the requirements under the Guidelines and fulfill the other conditions as may be stipulated by the RBI. On being satisfied that the applicants have complied with the requisite conditions laid down by the RBI as part of “in-principle” approval, they would be considered for grant of a license for commencement of banking business under Section 22(1) of the Banking Regulation Act, 1949. Until a regular license is issued, the applicants would be barred from doing banking business. Both IDFC and Bandhan are non-banking finance companies. While Mumbai-based IDFC is classified as an infrastructure finance company, Kolkata-based Bandhan is a microfinance institution.  After the Narasimham committee recommended opening up the commercial banking sector in 1991, 10 private banks were given licences in 1993-94 and another two in 2002-04.The central bank is issuing new bank licences for the first time in ten years. Kotak Mahindra Bank and YES Bank were set up in the last round, in 2004.

CONTEXT: In the budget speech of the Union Finance Minister for the year 2010-11, it was announced, inter alia, that there was a need to extend the geographic coverage of banks and improve access to banking services and that RBI was considering giving some additional banking licences to private sector players. Also on strengthening banking structure the High Level Advisory Committee (Chairman: Dr. Bimal Jalan) has recently submitted its recommendations to the Reserve Bank on the licensing of new banks. Subsequently, RBI issued Guidelines for licensing of new banks on February 22, 2013 . The RBI appointed a panel under  Bimal Jalan which scrutinised applications for new bank licences.


MICROFINACE INSTITUTION: A type of banking service that is provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services. Ultimately, the goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance. The recent report by the Nachiket Mor committee provides a framework for microfinance institutions to morph into consumer banks with limited deposit taking ability.


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