Money & Banking
RBI to clarify new banking licence norms shortly


The RBI had posted the final guidelines after almost three years of the then finance minister Pranab Mukherjee making an announcement in the Budget to allow new private banks
The Reserve Bank of India (RBI) on Thursday said it will issue clarifications on the final guidelines for new bank licences shortly, in order to address the concerns of intending applicants.
The regulator said many entities and groups interested in joining the banking fray have been posting queries ever since the guidelines were made public on 22nd February.
Assuring that the identity of those seeking clarifications will be protected, the banking regulator invited them to write in by 10th April. However, RBI has not mentioned when it would come out with the clarifications.
“Considering that the clarifications sought would be of wider interest and use for all intending applicants, the RBI has decided to post the clarifications on its website,” it said.
The RBI had posted the final guidelines after almost three years of the then finance minister Pranab Mukherjee making an announcement in the Budget to allow new private banks. RBI last gave bank licences around a decade back.
Many business houses, including the Tatas, Birlas, Mahindras, Anil Ambani-led Reliance Capital, asset financier Shriram Capital, LIC and India Post among others have shown interest or are tipped to contemplate an entry into the banking fray.
The interested parties have been given time till 1st July to apply.
Among other things, the guidelines have allowed any entity—be it a private or government owned—having its roots in any sector, including brokerages and realty, to apply for banking licence.
The RBI, however, said it will go by “fit and proper” criteria, which will include having a past record of sound credentials, integrity and financial soundness with a successful track record of 10 years, while giving licences.
Other requirements include an initial capital of Rs500 crore to be brought in by the promoter. 




4 years ago

This is a welcome gesture. Perhaps, beyond the routine re-statement of 'level playing field', obligation to comply with priority sector lending targets, 25% rural branches and so on, RBI could consider giving preference to applicants who can meet national priorities faster. Even the announcement of 'All Woman Bank' did not carry any accompanying assurance to support priority sector, financial inclusion or 'weaker section' beyond what is being done by existing public sector banks. Surprisiongly, while earlier 'New Gen Private Sector' banks had a reason to enter, namely infusing competetion, increased use of technology and absence of the burden of 'past performance', the present effort is to 'satisfy' certain categories of intending promoters of new banks rather than meeting the banking needs of the country.

Cabinet clears right to time-bound services bill

The bill envisages penalty of up to Rs50,000 against a government official failing to provide his or her duties

The government on Thursday gave its assent to a bill aimed at providing time-bound delivery of services like passports, pensions and birth and death certificates, among others, to citizens.


The Right of Citizens for Time-Bound Delivery of Goods and Services and Redressal of their Grievances Bill, 2011, was approved by Union Cabinet at a meeting chaired by prime minister Manmohan Singh.


The bill envisages penalty of up to Rs50,000 against a government official failing to provide his or her duties, official sources said.


It lays down an obligation upon every public authority to publish citizen’s charter, stating therein the time within which specified goods shall be supplied and services be rendered and provides for a grievance redressal mechanism for non-compliance of its provisions.


The sources said the issue of inclusion of NRIs in the ambit of the bill to access time-bound delivery of services will be dealt with separately by the ministry of personnel, public grievances and pensions and the law ministry.


The proposed legislation, spearheaded by Department of Administrative Reforms and Public Grievances, also mandates a public authority to establish a call centre, customer care centre, help desk and people’s support system to ensure time-bound delivery of services.


It also seeks establishment of public grievance redressal commission at the Centre and every state.


According to its provisions, a person aggrieved by the decision of the commission may prefer an appeal before the Lokpal at the Centre (in case of decision by the Centre’s public grievances redressal commission) and the Lokayuktas in the states.


All services provided by both the Centre and the state governments will be extended to citizens in a time-bound manner under the bill.


Addressing a joint sitting of Parliament last month, president Pranab Mukherjee had said that his government attaches priority to the enactment of the legislation proposed in this regard.



Vaibhav Dhoka

4 years ago

A long awaited legislation will give some relief to citizens.


TD Sharma

In Reply to Vaibhav Dhoka 4 years ago

It is an eyewash only, rest assured. I have known honest and dedicated civil servants who spent decades in the govt. protecting the interests of the govt and trying to serve people and then kicked on retirement while money-making and corrupt people have been and are still being rewarded with post-retirement sojourns. Nothing will really come out of this election stunt, and at the most only a few low rung clerks will be hanged to save the top IAS,. IPS, IFS, CSS bureaucrats, etc. The common man shall stand and be kicked!

MK Gupta

In Reply to TD Sharma 4 years ago

Very true-men may come and men may go, but the IAS (and CSS, its cohort, and the IPS, apart from the smaller players in the civil services) shall go on for ever.

New debenture redemption reserve provisions: Will they promote or demote the bond market?

Most companies retire debentures by issuing another set of debentures, hence, most companies don’t park funds for retiring debentures by creating any fund. The bond market will surely get affected negatively by such a move of the ministry of corporate affairs

Section 117C of the Companies Act, 1956, requires every company issuing debentures to create a debenture redemption reserve (DRR) for the redemption of such debentures and transfer an ‘adequate’ amount from its profits every year to such DRR until the issued debentures are redeemed. Hence, every issue of redeemable debentures requires creation of a DRR. The said Section, however, does not provide the meaning of the word ‘adequate’. In the year 2002, the ministry of corporate affairs (MCA) issued a circular1 clarifying the meaning of ‘adequate’ and provided the percentage which is mandatorily required to be transferred to DRR by certain class of companies. However, to develop the bonds market, MCA issued another clarification circular on 11 February 2013 (Circular 2013)2.


In addition to imposing the condition of creation of a DRR by every company for every issue of debentures; whether public or privately placed, the Circular 2013 further requires every such company to park, on or before 30th day of April each year, a sum of at least 15% of the amount of its debentures, maturing during the year ending on the 31st day of March next following, in any one or more of the following methods:

  1. in deposits with any scheduled bank, free from charge or lien;
  2. in unencumbered securities of the Central Government or of any state government;
  3. in unencumbered securities mentioned in clauses (a) to (d) & (ee) of Section 20 of the Indian Trusts Act, 1882;
  4. in unencumbered bonds issued by any other company which is notified under clause (f) of Section 20 of the Indian Trusts Act, 1882.

The money so parked can be utilized only for the purpose of repayment of debentures maturing during the year. The amount remaining deposited/ invested shall not at any time fall below 15% of the amount of debentures maturing during that year ending 31st March.


The unclear language of Circular 2013 mandates not only every company; whether listed or unlisted, private or public, to create a DRR for their issues; whether public or private, listed or unlisted, it also imposes a stringent condition of parking a sum equal to 15% of the value of debentures maturing during the year separately in the beginning of the year itself. The impact of the Circular 2013 on the companies issuing debentures, with respect to maintenance of DRR, can be explained better through the following charts:








Status of housing finance companies

The Circular 2013 issued in response to the need for development of corporate bonds/debentures, does not clearly state any specific amount of DRR to be maintained by housing finance companies (HFCs) registered with National Housing Bank (NHB). It provides an exemption to privately placed issues of debentures by NBFCs registered with RBI only. However, the HFCs which are registered with the NHB will not get any exemption and accordingly, the Circular intends to treat HFCs at par with the Non Banking Non Financial Companies (NBNCs) and hence, HFCs will also be required to maintain a DRR of 25% of the value of debentures in case of their public as well as privately placed issues of debentures. Representations will surely be made before the MCA to treat the HFCs at par with the registered NBFCs.

Status of NBFCs

The only benefit from the Circular 2013 is that it has reduced the DRR requirements for registered NBFCs3 from 50% to 25%. However, at the time of issue of Circular 2002, concept of Core Investment Companies (CICs)4 was not in the picture. CICs are the class of NBFCs which does not require registration with RBI if they fulfill the prescribed conditions. Such companies are NBFCs but not registered. The Circular 2013 covers only registered NBFCs, hence, it would mean that the CICs have also been treated at par with NBNCs.

Status of Private Companies

In Circular 2002, the last category included manufacturing and infrastructure companies only. Service and other companies were not specifically required to create any DRR under the Circular 2002. However, the vague language of Circular 2013 uses the terms “other companies including manufacturing and infrastructure companies” which would mean that the Circular 2013 covers every company. The Circular 2013 further covers issue of debentures on private placement basis by “unlisted companies” and hence, it would cover private companies also within its ambit. Though the intent of the issuing authority would have to cover unlisted public companies only, the vague language now would cover private companies unless another clarification is issued by the MCA.

Stringent condition of earmarking 15% of the maturing amount of debentures every year

The Circular 2013 requires the companies issuing debentures to earmark an amount not less than 15% of the amount maturing in a particular year by way of investment and deposits in a specified way. This is a new requirement inserted by the Circular 2013 as neither the Section 117C of the Act nor the Circular 2002 stipulates such requirement. Companies issuing short-term debentures with a maturity of less than 15% may not require to park such funds, however, other issues of debentures will require such earmarking of funds and the HFCs and unlisted and private companies may face trouble.

Circular 2013: Whether prospective or retroactive?

The Circular 2013 nowhere specifies the effective date of such drastic amendment. It is not clear whether the new requirements of DRR will be applicable only to the debentures issued after the date of this Circular or will it be applicable even on all the issues standing in the books of the companies. As the Circular 2013 is providing clarification to Circular 2002 read with the Section 117C of the Companies Act, in our view it should come into effect with immediate effect and companies may require ear marking a sum equal to 15% of value of debentures by 30 April 2013 for the debentures maturing during the year 2013-14.

Whether the Circular 2013 is superseding Circular 2002 and the Act?

Apparently, yes. The Circular 2002 was issued as a clarification to Section 117C of the Companies Act and Circular, 2013 has been issued to provide further clarification to both the Circular 2002 and the Section 117C.

Whether the MCA has authority to impose such conditions?

Article 246 of the Constitution of India empowers the Parliament exclusively to make laws in the country with regard to matters included in Union List and State Legislature to frame laws for matters stated in State List. Corporate Laws being one of the matters of Union List can be framed and made by the Parliament only.


Section 117C does not delegate any power to MCA to issue any binding circular. However, the MCA had issued a clarification circular in 2002 and now another clarification has been issued in 2013. With due respect, the authors raise a question that in absence of any such power delegated by the Section 117C, can the MCA issue such circulars which is more in nature of law than a clarification?


While the intent of the government seems to be benign, it seems that the issuing authority has ended up creating confusion in case of HFCs, and more importantly, by adding a requirement for creating a reserve fund. This was no where there in the Circular 2002 issued by the MCA and is nowhere therein the Companies Act itself. Most companies retire debentures by issuing another set of debentures. Hence, most companies don’t park funds for retiring debentures by creating any fund as envisaged in the Circular 2013. The Circular 2013 may act as hindrance to such companies. The bond market will surely get affected negatively by such a move of the MCA.


See our Primer on Debentures at:


Read other articles by the authors here:


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