The Reserve Bank of India (RBI) came out on Monday with its guidelines for 'on-tap' licensing of universal banks in the private sector. A minimum start-up capital of Rs500 crore; minimum promoter holding of 40% (lock-in period five years); listing of the shares within six years; and promoters' holdings to be brought down to 15% in 15 years are some of the stipulations laid down by the regulator for obtaining a bank licence on tap. However, this may not find more takers, says a report.
In a research note, Religare Capital Markets Ltd, says, "We do not see many non-banking finance companies (NBFCs) converting into banks given the stringent guidelines and statutory norms. Thus, though on-tap, licensing will be limited."
"The RBI has barred the entry of NBFCs that are part of a group with total assets of over Rs5,000 crore and has non-financial businesses accounting for over 40% of total assets or gross income; this, in our view, will exclude NBFCs like Bajaj Finserv, Mahindra & Mahindra Financial Services Ltd (MMFS) and Cholamandalam investments and Finance Co Ltd (CIFC). Large industrial houses have also been disqualified as eligible entities, but have been permitted to invest up to 10% in banks. This means that L&T Finance cannot convert into a bank with more than 10% holding by Larsen & Toubro (L&T)," the report says.
The RBI has made it non-mandatory, the formation of non-operative financial holding company (NOFHC) if promoters are individuals, and standalone promoting or converting entities. "In our view," Religare says, "While this is positive for IDFC–IDFC Bank like structure, IDFC will have to apply for a special exemption since the rules do not permit retrospective changes."
However, the central bank has made NOFHC compulsory for promoters with group entities. RBI has clarified that individual promoters, promoting entities, and converting entities that have other group entities, can set up the bank only through the NOFHC route. In such cases, the promoter or promoter group need to own a minimum 51% in the NOFHC.
Under separate entity, only specialised activities would be allowed. NBFCs will have to transfer all lending businesses to the new bank, with only specialised activities, like credit cards, to be done separately under a NOFHC. "We think large NBFCs would refrain from applying given the onerous statutory compliance requirements," Religare says.
As per the guidelines, promoters or NOFHCs need to own a minimum 40% equity in the bank, with a lock-in period of five years. The holding needs to be brought down to 30% within 10 years and 15% within 15 years from the date of commencement of business of the bank. Foreign shareholding is permitted up to 74%, subject to the minimum promoter shareholding requirements.
The RBI also stated that senior-level individuals and professionals with 10 years of experience in banking and finance are eligible to promote a bank. This implies that senior managers of well-run banks in India may be in the fray to set up new banks.