Private sector entities or groups owned and controlled by Indian promoters with diversified ownership, sound credentials and integrity, and having a successful track record of at least 10 years, would be eligible for opening new banks

The Reserve Bank of India (RBI) on Friday released guidelines for licensing new banks. Accordingly, private entities with sound credentials and a track record of 10 years of successful business would be eligible to get new bank licenses.

RBI said, there would a cap of 49% on foreign holding in new banks and it must have a minimum paid up capital of Rs500 crore. Entities or groups in private sector, public sector and non-banking financial companies (NBFCs) are eligible for obtaining a new bank licence, the central bank said.

Religare Enterprises, in a release said the new guidelines issues by the RBI are in line with its business.”We welcome the final guidelines from the RBI; Banking is a logical extension of Religare’s diverse India financial services platform and we will certainly apply for a license.

We are studying the guidelines and will take appropriate steps to apply for the license accordingly,” it said. Religare is one of the front runners to apply for a banking license from the RBI.

Here are the key features of the guidelines for a new banking licence...

(i) Eligible Promoters: Entities/groups in the private sector, entities in public sector and NBFCs shall be eligible to set up a bank through a wholly-owned Non-Operative Financial Holding Company (NOFHC).

(ii) “Fit and Proper” criteria: Entities/groups should have a past record of sound credentials and integrity, be financially sound with a successful track record of 10 years. For this purpose, RBI may seek feedback from other regulators and enforcement and investigative agencies.

(iii) Corporate structure of the NOFHC: The NOFHC shall be wholly-owned by the promoter/promoter Group. The NOFHC shall hold the bank as well as all the other financial services entities of the group.

(iv) Minimum voting equity capital requirements for banks and shareholding by NOFHC: The initial minimum paid-up voting equity capital for a bank shall be Rs5 billion. The NOFHC shall initially hold a minimum of 40% of the paid-up voting equity capital of the bank which shall be locked in for a period of five years and which shall be brought down to 15% within 12 years. The bank shall get its shares listed on the stock exchanges within three years of the commencement of business.

(v) Regulatory framework: The bank will be governed by the provisions of the relevant Acts, relevant Statutes and the Directives, Prudential regulations and other guidelines/instructions issued by the RBI and other regulators. The NOFHC shall be registered as a non-banking finance company (NBFC) with the RBI and will be governed by a separate set of directions issued by RBI.

(vi) Foreign shareholding in the bank: The aggregate non-resident shareholding in the new bank shall not exceed 49% for the first five years after which it will be as per the extant policy.

(vii) Corporate governance of NOFHC: At least 50% of the directors of the NOFHC should be independent directors. The corporate structure should not impede effective supervision of the bank and the NOFHC on a consolidated basis by RBI.

(viii) Prudential norms for the NOFHC: The prudential norms will be applied to the NOFHC both on a stand-alone as well as on a consolidated basis and the norms would be on similar lines as that of the bank.

(ix) Exposure norms: The NOFHC and the bank shall not have any exposure to the promoter Group. The bank shall not invest in the equity/debt capital instruments of any financial entities held by the NOFHC.

(x) Business plan for the bank: The business plan should be realistic and viable and should address how the bank proposes to achieve financial inclusion.

(xi) Other conditions for the bank:

1. The board of the bank should have a majority of independent directors.

2. The bank shall open at least 25% of its branches in unbanked rural centres (population up to 9,999 as per the latest census)

3. The bank shall comply with the priority sector lending targets and sub-targets as applicable to the existing domestic banks.

4. Banks promoted by groups having 40% or more assets/income from non-financial business will require RBI’s prior approval for raising paid-up voting equity capital beyond Rs10 billion for every block of Rs5 billion.

5. Any non-compliance of terms and conditions will attract penal measures including cancellation of the licence of the bank.

(xii) Additional conditions for NBFCs promoting/converting into a bank: Existing NBFCs, if considered eligible, may be permitted to promote a new bank or convert themselves into banks.