Money & Banking
Universal Banks: RBI issues draft guidelines for ‘on tap’ licensing
The Reserve Bank of India (RBI) on Thursday released on its website, “Draft Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector” for comments from the public. As per the new guidelines, individuals or professionals who are residents and have 10 years of experience in banking and finance can become promoters of universal banks. While excluding large industrial entities from starting own universal bank, the central bank allowed them to invest up to 10% in these banks. The universal bank is mandated to have a minimum paid up capital of Rs500 crore and later a minimum net worth of Rs500 crore at all times.

Here are the key features of RBI's new guidelines on universal bank licensing...
 
(I) Eligible Promoters
 
i. Existing non-banking financial companies (NBFCs) that are ‘controlled by residents’ and have a successful track record for at least 10 years.
ii. Individuals / professionals who are ‘residents’ and have 10 years of experience in banking and finance.
iii. Entities / groups in the private sector that are ‘owned and controlled by residents’ [as defined in FEMA Regulations, as amended from time to time] and have a successful track record for at least 10 years, provided that if such entity / group has total assets of ₹50 billion or more, the non-financial business of the group does not account for 40 per cent or more in terms of total assets / in terms of gross income. 
 
 
(II) ‘Fit and Proper’ criteria
 
Promoter/ promoting entity/ promoter group should have a past record of sound financials, credentials, integrity and have a minimum 10 years of successful track record. 
 
(III) Corporate structure
 
The requirement of Non-Operative Financial Holding Company (NOFHC) is not mandatory for individual promoters or standalone promoting/converting entities who/ which do not have other group entities. Individual promoters/ promoting entities/ converting entities that have other group entities, shall set up the bank only through an NOFHC. The NOFHC shall be owned by the promoter/ promoter group to the extent of not less than 51 per cent of the total paid-up equity capital of the NOFHC. Specialised activities would be permitted to be conducted from a separate entity proposed to be held under the NOFHC subject to prior approval from the Reserve Bank and subject to being ensured that similar activities are not conducted through the bank.
 
(IV) Minimum capital requirement
 
The initial minimum paid-up voting equity capital for a bank shall be Rs500 crore. Thereafter, the bank shall have a minimum net worth of Rs500 crore at all times.
 
The promoter/s and the promoter group/NOFHC, as the case may be, shall hold a minimum of 40 per cent of the paid-up voting equity capital of the bank which shall be locked-in for a period of five years from the date of commencement of business of the bank. The promoter group shareholding shall be brought down to 15 per cent within a period of 12 years from the date of commencement of business of the bank.
 
(V) Foreign shareholding in the bank
 
The foreign shareholding in the bank would be as per the existing foreign direct investment (FDI) policy subject to the minimum promoter shareholding requirement indicated in paragraph (IV) above. At present, the aggregate foreign investment limit is 74 per cent.
 
(VI) Corporate governance prudential and exposure norms
 
The bank shall comply with the provisions of Banking Regulations Act, 1949 and the existing guidelines on prudential norms as applicable to scheduled commercial banks. The bank is precluded from having any exposure to its promoters, major shareholders who have shareholding to the extent of 10 per cent or more of paid-up equity shares in the bank, the relatives of the promoters as also the entities in which they have significant influence or control.
 
(VII) Business plan for the bank
 
The business plan submitted by the applicant should be realistic and viable and address how the bank proposes to achieve financial inclusion.
 
(VIII) Other conditions
 
The bank shall get its shares listed on the stock exchanges within six years of the commencement of business by the bank.
 
The bank shall open at least 25 per cent of its branches in unbanked rural centres (population up to 9,999 as per the latest census). The bank shall comply with the priority sector lending targets and sub-targets as applicable to the existing domestic scheduled commercial banks. The board of the bank should have a majority of independent directors.
 
(IX) Procedure for application
 
•The licensing window will be open on-tap, and the applications in the prescribed form along with requisite information could be submitted to the Reserve Bank at any point of time. 
 
•The applications will be referred to a Standing External Advisory Committee (SEAC) to be set up by the Reserve Bank. 
 
•The Committee will submit its recommendations to the Reserve Bank for consideration. 
 
•The decision to issue an in-principle approval for setting up of a bank will be taken by the Reserve Bank. 
 
•The validity of the in-principle approval issued by the Reserve Bank will be 18 months from the date of granting in-principle approval and would thereafter lapse automatically. 
 
•The Reserve Bank’s decision in this regard will be final. 
 
• In order to ensure transparency, the names of the applicants for bank licences and the names of applicants that are found suitable for grant of in-principle approval will be placed on the Reserve Bank’s website periodically. 
 
 
Suggestions and comments on the draft guidelines should have to be sent before 30 June 2016 to the Chief General Manager, Reserve Bank of India, Department of Banking Regulation, Central Office, 13h floor, Central Office Building, Shahid Bhagat Singh Marg, Mumbai-400001. Suggestions and comments can also be emailed to the Reserve Bank on [email protected]

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Voters want good governance but political parties are not interested
In every election, voters think they will get a good performance from the government and accordingly elects the party they deem fit for this. However, according to a survey conducted by Association for Democratic reforms (ADR) across Tamil Nadu, no one is interested in good governance or resolving issues of citizens.
 
"If voters expect good performance from the Government, they are likely to be disappointed. In democracy as played out today, one party has to merely defeat the other party, not necessarily deliver good governance. To win they seem to resort to freebies for voters rather than deliver good governance," the Survey finds out.
 
ADR conducted a Survey of over 16,000 respondents in every constituency of Tamil Nadu in February 2016, which it says is the largest Survey done so far in the state. The purpose of the survey is to find out what voters really want from the Government and how they rate the performance on the issues that are important to them.
 
When asked for their top three priorities, voters told ADR that traffic congestion, water and air pollution and noise pollution are their top priorities. "About 48.08% of voters said that traffic congestion was one of the top three priorities for them, 34.84% of voters said that for water and air pollution, and 33.73% for noise pollution. Clearly, they show that issues of traffic and pollution are the top priorities for them. About 83% of voters gave one of these three as their top priority," it added.
 
 
Better employment opportunities, lower food prices and facility for cyclists and pedestrians were also among the top priorities. It is also interesting to note what issues were not priorities for them. For instance reservation for jobs, education, terrorism, strong military, corruption, were not top priorities, ADR says.
 
 
Talking about performance rating of government, the Survey found that traffic congestion and pollution were rated as worst performers by voters. ADR says, "There were a total of 25 issues for which they gave priorities and then rated Government’s performance. Thus for the top three priorities, traffic congestion was ranked 24th and noise pollution was ranked 21st out of 25, better employment opportunities 12th, and drinking water 23rd. So, high priority issues for voters had very bad performance."

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COMMENTS

Mahesh S Bhatt

9 months ago

Before elections Sadak /Paani /Bijli.

After elections Aadhar card/PAN card /Sr Citizen cards.

Mahesh

The Curious Case of Vinay Rai, the Vijay Mallya of a decade ago
The names of Usha Ispat and Malvika Steel, promoted by Vinay and Anil Rai have figured among the top 10 defaulters on what is called Reserve Bank of India (RBI)'s defaulters' list, published by news portal Newslaundry.com. The report says, Usha Ispat had been getting loans and defaulting on them for more than a decade despite raids by Central Bureau of Investigation (CBI), first information reports (FIRs) and the Serious Fraud Investigation Office (SFIO) initiating proceedings against the company promoters. But while Vijay Mallya is under tremendous scrutiny, Vinay Rai had reinvented himself. From a defaulter of mega steel projects he became an educationist but that venture also turned extremely controversial.
 
Vinay Rai, the promoter of Usha Ispat and Malvika Steel was reportedly close to Rajiv Gandhi and had managed to do a mega public issue of shares in 1989 that almost flopped. His steel venture in Gopalganj, Uttar Pradesh did not take off. He quietly went out of the limelight. But Rai, a Sathya Sai Baba devotee reinvented himself as an educationist. His website now describes himself as “A philosopher. A philanthropist. A visionary. An educationist.” His Ahmedabad-based Rai University is established by Gujarat State Legislature under Gujarat Act No12 of 2012. 
 
However, his education venture also ran into trouble last year. In January 2015, the Enforcement Directorate (ED) attached properties worth over Rs500 crore belonging to Rai Foundation that runs various colleges across the country under the aegis of Rai University. The case was related to alleged sale of 'fake' degrees by Eastern Institute for Integrated Learning in Management (EIILM) in Sikkim, which is run by Rai Foundation.
 
According to ED, the money earned through sale of fake diplomas and degrees was used to buy property in Chhattisgarh, Rajasthan, Haryana and West Bengal as well as invested in its campuses in Bangalore, Ahmedabad and Ranchi. "While the purchase value of the attached properties stands at Rs160 crore, the market value has been pegged at around Rs500 crore by ED. The ED probe found that the management and owners of the university were "laundering" funds obtained from students as curriculum and tuition fees in purchasing large tracts of land and creating bank balances across the country," says a report from Times of India
 
The report from Newslaundry, says, Usha Ispat has defaults of Rs16,911 crore. However, "only Rs 5,093 crore of Usha Ispat’s total defaults are labelled as wilful according to the RBI’s list. Usha Ispat owes more than half of the total default sum to Life Insurance Corp of India (LIC) at Rs8,619 crore," the report says.
 
Malvika Steel was owned by Usha Ispat before being conveniently taken over by SAIL in 2009. Malvika Steel had defaults of Rs3,057 crore, as per the list published by Newslaundry. The report says, "The steel plant (of Malvika Steel) is located in Jagdishpur, in Amethi district, and has defaulted on loans since 2007. All of its loans are owed to either General Insurance Corp or LIC. According to a Hindu Business Line report, the Modi government pulled the plug on the plant’s revival in 2014 and it may be up for sale now — Rs300 crore had been sunk into the project in the United Progressive Alliance (UPA) regime. We have to wonder how much of a part Rai’s political connections played in Usha Ispat staying under the radar for as long as it has, especially since the company seems to be about as substantial as Casper the Friendly Ghost."
 
Earlier in 2002, the CBI raided premises of both the Rai brothers for allegedly duping financial institutions for over Rs100 crore.  
 
In the same year, Financial Express, in an article had described lavish lifestyle of the Rai brothers even as there were huge debts. "The Rais have CBI FIRs for cheating — making fake bills and siphoning funds — registered against them, face investigations for income-tax evasion and will not repay their humungous loans — or even the interest on them. It was only in 2000 that Vinay Rai was among the 11 Indians in the Forbes list of the world’s 300 richest people with a personal net worth of Rs5,338 crore. Yet, this was the year that two Rai companies — Malvika Steels and Usha Ispat — defaulted on loans of about Rs2,400 crore," the report says.
 
"But the family’s political clout hasn’t waned," the report dated 12 December 2002 says, adding, "The Governing Council of the foundation boasts Oscar Fernandes and Subbarami Reddy of the Congress, Amar Singh of the Samajwadi Party, actress and former TDP MP Jaya Prada and the BJP’s Anjali Rai. Then there’s PK Kaul, former Cabinet Secretary and Indian Ambassador to the US; KS Sarma, CEO of the Prasar Bharti and Justice Eswara Prasad, former High Court judge."  
 
The newspaper also gives details on how Information Technologies India Ltd (ITIL), another group company of the Rai brothers, had become an engine of growth during 2000 with a market cap of Rs2,000 crore. The report says, "In contrast, total investment in the company did not exceed Rs70 crore. But that was during the great tech boom, when each ITIL share, issued at Rs10, were being traded for a whopping Rs2,250. And then the tech bubble burst in 2001, and Rs2,000 crore of ITIL went up in smoke. This was the starting point for trouble in other group companies."
 
"In August 2000, when Kulwant Rai, the father of Vinay and Anil Rai, was on the board of IDBI, Koshika Telecom, another group company of the Rais, was sanctioned a loan worth Rs100 crore when it had three of its four licences cancelled by the government for non-payment of licence fees. The fourth licence, which was running by default, because there were no other cellular operators in that part of Uttar Pradesh, also owed money to the government. Yet IDBI sanctioned Rs100 crore against a personal guarantee of Vinay Rai and pledging of shares in ITIL," the report says. As on 12 February 2003, ITIL was traded last on the BSE at Rs1.05 or 16% down. 

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COMMENTS

Roy Aranha

10 months ago

whom do we trust neither any political party a new movement like kejriwal is required

Anurag

10 months ago

2009 purchase of Malvika Steels by SAIL - that is why we have so many PSU's in business. Hiding behind noble cause of providing self sufficiency of STEEL for India, SAIL is just a den of thieves, for looting Indian tax payers as well Indian public in general by high steel prices supported by tariff and non-tariff barriers for cheaper steel imports in India.

Gopalakrishnan T V

10 months ago

Banks are open to loot by those who are smart ,close to politicians, bureaucrats and Institutions like SEBI RBI , CBI and Income Tax keep prefer to keep their eyes and ears closed. But for media and some investigative Journalists public would never come to know that they are being looted day in and day out as tax payers , depositors and share holders of fraudulent companies. May God save the nation and its innocent people.

Ramani Krovi

10 months ago

The story of bank loan waivers and write offs is a Pandora'sbox.If opened it may bite all political parties and politicians.For a long time the bank loans,subsequent waivers and write offs were manipulated by influential politicians.Many defaulters do have dubious reputation of becoming educationists or philanthropists.These politically influential people are continuing their dubious activities behind the veil of secrecy of bank loans which prevents banks from declaring openly.Even Raghuram Rajan asked Supreme Court not to publish the list of top defaulters because he knows pretty well that public confidence and international reputation of Indian business and Industry will suddenly come down.Now the banks are in a tight spot as if they are between a devil and deep sea.If you open the box many skeletons come out of the cupboard.Most of the defaulters if cornered may reel out the political donations given ,causing embarrassment to all political parties.

REPLY

S Santhanam

In Reply to Ramani Krovi 10 months ago

RBI by trying to stall the release of defaulters list, he is doing a great disservice to the nation. He has also not taken action against erring RBI officials. When KYC is scrupulously followed for risk free savers, RBI failed to ensure it in cases of account holders of sahara nbfc and large number of similarly running FIs. Why should it allow special category of NBFCs thus helping dubious corporates like sahara. Earlier RBI take action better for the country.

S Santhanam

10 months ago

Sad but true politicians of hues have played havoc by misusing public institutions like LIC, GIC and helped dubious corporates. RBI also is guiltyfor the present pathetic state of affairs of PSBs. Sahara, peerless, mallayas, rais will continue to have joy rides as every political party has taken favours from corporates. Better send this article to PMO, FM, RBI.

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