Companies which would be eligible to apply must have a public shareholding of at least 51 per cent.

The Reserve Bank of India (RBI), on Monday, said that it had decided to extend the validity period of the in-principle approval for setting up of the Non-Operative Financial Holding Company (NOFHC) from one year to 18 months.

“It is expected that this would provide sufficient time for the promoters/promoter group to comply with the various stipulations in the guidelines and the terms and conditions that would be set out while granting the in-principle approvals to successful applicants,” said RBI while issuing clarifications to queries on new banking licenses.

The RBI had released guidelines for licensing of new banks in the private sector last February . The queries received from applicants brought out several complex issues pertaining to the re-organisation of the existing corporate structure, restructuring of businesses and meeting the regulatory requirements.

The RBI further said that NOFHC is to be wholly-owned by the promoters or promoter group and it cannot be a listed company. If the promoter group, which has the financial services company listed or otherwise, wishes to set up a bank, “it must transfer all its regulated financial services business to a separate company and transfer the shareholding in such companies to the NOFHC.”

“After it was transferred, the regulated financial services business will cease to be a financial services company and it can set up a NOFHC provided the public shareholding in it is not less than 51 per cent,” said RBI.

RBI also said that if a housing finance company plans to have an NOFHC, the lending activities must be conducted from inside the bank. Therefore, RBI said “the housing finance activity of the HFC should be transferred to the bank under the NOFHC. The financial sector regulated entity which holds the HFC substantially will have to come under the NOFHC.”

On rural branches

PTI reports:

The RBI sought to allay apprehensions over the lack of level playing field on issues such as rural branch presence and foreign holdings between the existing lenders and the new ones who are to be granted licences.

Replying to a specific query on the lack of level playing due to the insistence on having 25 per cent presence in rural areas, the RBI said all the incremental branches by the existing players are opened in the same proportion.

“With a view to enhancing financial inclusion, the conditions relating to the branch network are specifically prescribed at 25 per cent for unbanked rural centres... this norm has been extended to the existing banks also and they are required to comply with this stipulation while opening new branches,” the regulator said.

To a query on ceiling of 49 per cent equity for the first five years on foreign holding, the RBI said it has been done to encourage more domestic investors getting in.

“After expiry of five years, the aggregate foreign shareholding in the bank would be allowed as per the extant FDI policy,” the RBI said in the over 160-pages clarifications it issued on Monday.

The central bank also clarified that the new banks will have to abide by the existing requirements on the cash reserve ratio or the ratio deposits to be parked with the RBI, the government bond holding or statutory liquidity ratio and the priority sector lending requirements, which have been kept at par with an existing lender. There will no regulatory forbearance in any of the matters, it said.

It said non-bank lenders (NBFCs) can convert their presence in tier-II to tier-VI cities into bank branches once they are selected to enter the fray.

However, for lucrative Tier-I cities, the Reserve Bank said, the conversion can be done, but would be deducted from the particular applicant NBFCs (non bank finance company) quota of Tier-I branches.

“All NBFC branches in Tier-1 centres which would carry out banking business may be permitted to be converted into bank branches and the excess over the entitled number of Tier-1 branches would be adjusted against the future entitlements of the new bank within a maximum three years from the date of commencement of business by the bank,” it said.

The RBI added that the branches of NBFCs and the bank should be ‘distinct and separate.’

Additionally, once a NBFC branch is converted into a bank branch, it cannot conduct business of the NBFC, it added.

The Reserve Bank explained that the new entrants have been disallowed getting into newer areas for

three years because it wants them to get on “sound footing” before diversification.

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