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MEMBER OF PARLIAMENT (Rajya Sabha)

ph.D. (Harvard)
(f 990'91)
law
&
Justice
for
Commerce,
Minister
Cabinet
Chairman (with Cabinet rank), Commlssion on labour
Standards and lnternational Trade (f994'96)
Former Professor of Economics, lndian Institute of
Technology, Delhi & Faculty, Hanrard University

DR. SUBRAMANI"AN SWAIVIY

Res.: AB-14, Pandara Road, New Delhi - 110 003

Phone&Fax: +91 11 23387278


E-mail : s.rramy39@gmail.com
sr,vamy@post. hanmrd.edu

'{.*tq- sq*

June L5,20L6.

Shri Narendra Modi,


Prime Minister of India,
South Block,
New Delhi.

Dear Prime Minister:

You may please refer

to my last letter on the above subiect, dated

October 5, 2015.

The RBI had issued Guidelines for Licensing of Small Finance Banks
in
the private sector and set out the criteria for eligible applicants for the
license. But these Guidelines were brazenly flouted in the grant
of approval
and hence this was not in the public interest. Therefore, these
illegal
approvals attract Section l3(lxdxiii) of the Prevention of
Corruption,Act
(1988)' The present Governor of RBI is thus answerabte
in a probe into this
matter.

This matter arose from the "in-principre approval,, to smal


Finance
Bank Licenses (10 in number) in November,2oL4, for
the stated objective of
financial inclusion for providing loans to small business units,
small and
marginal farmers, micro and smalt industries and other
unorganized sector
entities, through high-technology, low cost operations.

to

RBf

Exactly 72 applicants from different regions of the country


had applied
on 16th of August,zolS,the RBI with its Governor's consent, granted

'

the said approval to 10 applicants (most of them were MFI). More than half
of the successful applicants were lacking the eligibility criteria as set out in
the guidelines.
Looking into the credentials of successful applicants, it is apparent that

most of these applicant's foreign holding are contrary to the criteria as set
out by RBI for Small Finance Banks. Most of successful applicants are in fact
controlled by foreign entities.

It is also important to mention here that most of the successful


applicants are funded or supported by L or 2 common foreign entities run by
specific community. 5 years for promoters which would be assessed by the
RBI as 'fit and proper' are set against no experience eligibility for NBFCs, MFls
and LABs indicates an interest of benefiting these entities.

Further, .P.10 of the guidelines creates an exception for


NBFCs/MFls/LABs to meet the 4O% promoters contribution eligibility criteria
laid down in P. 6, which implies a strong mala fide interest for benefiting
those NBFCs/MFls/LABs which cannot meet the eligibility criteria.

P.13(ii) gives a huge time span of 3 years to NBFCs/MF!s/LABs for


bringing down the shareholding of individual relatives and entities other than
promoter to L0Yo, as share holding of these entitities more than L0% is a
disqualification for approval of SFB. Such latitude for compliance is
unprecedented.

It

can be clearly made out from the Annual Reports of the

10

shortlisted applicants out of which each of them is a NBFC/MFULAB, that not


even a single company of the shortlisted applicants fulfils all the criteria laid
down in the guidelines for SFB which confirms malice in the RBI decision.

Further P. 16(1) creates a provision for the RBI to lay down additional
criteria in relevance to the prescribed 'fit and proper' criteria, which gives an
opportunity to corrupt persons to play with words and create a way for the
beneficia ry companies.

Thus the idea

of

in principle' approvals creates an opportunity for the


applicants to fulfil the conditions in a long period of one and a half years. But
the discrepancies in the guidelines laid down put the whole idea of in
principle' approval under a doubt, whether the idea is an opportunity or a
high level conspiracy to benefit some.

Therefore it is in the public interest to check the legality and malice in


the selection process for Small Finance Banks since the RBI has failed to
perform the duty diligently andlor take action to rectify thus seems to be,
on the face of it, a malafide negligence. lt is malafide since it appears to be
prima facie for money laundering purposes of several of the politicians and

bureaucrats who were friendly to the then Finance Minister Mr. P.


Chidambaram. Official friendly and compromised by Mr. Chidambaram stilt
dominate the high posts in the Finance Ministry.
You may therefore consider a probe by the CBI led SlT, and have RBI
officials including the Governor of RBI interrogated for this scam.

t,t/hB.xW

Yours sincerely,

( SUBRAMAN|AN SWAMY )