The Reserve Bank of India (RBI) on Thursday issued draft norms for on-tap licensing for universal banks, in which stiff conditions have been set for industrial houses that aspire to become banks.
This is first time since the financial sector was opened up in 1991 that the banking regulator has decided to make the bank licensing process continuous, as opposed to the ‘stop and go’ approach adopted hitherto.
While the broad contours of the norms are in line with guidelines issued for bank licensing in 2013, the central bank has now made it clear that business houses predominantly in financing activities, for example, non-banking financial companies (NBFCs) would be preferred.
“Groups in the private sector that are ‘owned and controlled by residents’ and have a successful track record for at least 10 years, provided such a group has total assets of Rs. 5,000 crore or more, and 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,” RBI said, regarding eligibility of the promoters. Preference will be given to promoting entities having diversified shareholding, it added.
Individuals can also apply for a licence but they should have at least 10 years of experience in banking and finance.
The central bank has allowed individuals as well as companies who are directly or indirectly connected with large industrial houses to have 10 per cent stake in a bank, as compared to 5 per cent earlier. However, the regulator said such companies should not have such shareholders should not have any director on the board of the bank on account of shareholder agreements or otherwise.
The initial capital requirement for opening a bank is set at Rs. 500 crore and the entity have to maintain 13 per cent capital adequacy ratio for three years. The entity has to maintain a net worth of Rs. 500 crore at all times.
Regarding the corporate structure, it is proposed that individuals or standalone promoting entities need not have a non-operating financial holding company structure (NOFHC), but this is mandatory if the promoter entities have other businesses. The NOFHC, which will be registered with RBI as NBFC, will hold the bank as well as the other financial services companies of the group.
The NOFHC will not be allowed to set up any financial services companies for three years from the date it commences. Promoters’ minimum stake in the NOFHC will be 51 per cent.
The promoter (or NOFHC, as is the case may be), should have 40 per cent equity in the bank which will be locked in for five years, from the date the bank starts business, RBI said. In case promoters (or NOFHC) hold more than 40 per cent, then it has to be brought down over five years.
The RBI also mandated that promoters’ stake be brought down to 30 per cent over 10 years and to 15 per cent over 12 years.
The bank has to list its shares on the stock exchange within six years.
“The bank shall maintain arm’s length relationship with Promoter / Promoter Group entities, and the major suppliers and major customers of these entities,” the draft norms said.
The central bank said licences would be issued on a selective basis to those who are likely to conform to the best international and domestic standards of customer service and efficiency and it may not be possible for RBI to issue licences to all the applicants just meeting the eligibility criteria prescribed above.
RBI will set up a standing external advisory committee (SEAC), comprising eminent personalities, to vet the applications. The SEAC will, in turn, submit its recommendations to RBI for consideration.
RBI will put out the name of entities that have applied for a licence and also of successful candidates in the public domain. The regulator will also inform the unsuccessful candidates about the decision. Unsuccessful candidates will not be allowed to apply within three years of rejection.
The unsuccessful candidates can appeal against the regulator’s decision to the RBI’s central board of directors within one month of rejection.
The initial capital requirement for opening a bank
is set at
Rs. 500 crore
