RBI issues guidelines for new bank licences
Feb 22 2013 , Mumbai
New norms will allow corporate houses to enter the banking space, meeting industry demands
According to bankers, RBI will be very strict on the final approvals and may not give away too many licenses.
Deepak Parekh, chairman HDFC, said, “It is a well-balanced set of guidelines and the RBI needs to be lauded for the minute details looked into while coming out with the guidelines. Companies with serious intentions will only be allowed to set up banks.”
The new banks, when permitted, will have to be set up through a wholly-owned non-operative financial holding company (NOFHC) with the minimum paid up equity of Rs 500 crore. The new entity will be registered with the RBI as an NBFC with a special set of regulations, which will be issued shortly.
NOFHC shall hold a minimum of 40 per cent of the paid-up 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. Any shareholding in excess of 40 per cent needs to be brought down to 40 per cent within three years of commencement of operations
Individual voting rights cannot exceed 10 per cent of the total voting rights of the NOFHC held by any individual belonging to the promoter group, along with his relatives and along with entities in which he or his relatives hold not less than 50 per cent of the voting equity shares.
The shareholding by NOFHC shall be brought down to 20 per cent of the paid-equity capital of the bank within a period of 10 years, and to 15 per cent within 12 years from the date of commencement of business of the bank. The bank is also allowed to raise equity either through a private placement or an initial public offering (IPO). The bank has to get its shares listed either on BSE or NSE within three years of commencement of operations.
Foreign shareholding in the new banks will be restricted to 49 per cent for the first five years from the date of licensing. No non-resident shareholder directly or indirectly, individually or in groups, or through subsidiary, associate or joint venture will be permitted to hold 5 per cent of paid-up capital of the bank during this period. After five years, however, the foreign holding can go up to 75 per cent as per the existing FDI guidelines.
About 50 per cent of the directors on board of these banks have to be totally independent of the promoter or promoter group entities and their major customers and major suppliers with special knowledge of banking business.
However, the guidelines place stiff conditions, saying that promoters/promoter groups should be ‘fit and proper in order to be eligible to promote banks through a wholly owned NOFHC. RBI would assess the ‘fit and proper’ status of the applicants on the basis of following criteria: promoters/ promoter groups should have a past record of sound credentials and integrity; promoters/promoter groups should be financially sound and have a successful track record of running their business for at least 10 years.
The NOFHC is also required to hold all other financial services entities of the group regulated by RBI or other financial regulators so that the financial sector entities are ring-fenced from other group activities of the corporate house.
Bharat Doshi chairman, Mahindra & Mahindra Financial Services said in a release, “Mahindra Finance which has strong rural presence and track record of good governance will definitely look at this opportunity after review by its board and the board of the parent company Mahindra & Mahindra.”
Specialised activities of the group like insurance, mutual funds, stock broking, infrastructure debt funds have to be conducted through a separate subsidiary or a joint venture while the new bank can, however, undertake business in credit cards, primary dealers, leasing, hire purchase, factoring which it can conduct within the bank or as a subsidiary or joint venture.
The corporate house must ensure that the group activities do not impede working of the entities of the NOHC and primary supervision of the entities held within the NOHC will be with the respective sectors regulators.
The NOHC will not be permitted to set up any new financial sector entity within three years of commencement of operations. However, it can start any joint venture or subsidiary legally permitted by the RBI.
Promoter group should hold the equity investment in the bank and any change of shareholding involving more than 5 per cent should have the prior permission of RBI.
NOFHC is also restricted from having any equity, debt capital and credit exposure to any entity outside the group, including other NOFHCs or other banks, financial and non-financial entities.
Sunil Godhwani, chairman and managing director of Religare Enterprises said in a release, “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 licence. We are studying the guidelines and will take appropriate steps to apply for the license accordingly.”