RBI opens the door for more private players in banking sector

The Reserve Bank of India on Friday released new rules that would allow private players and non-banking finance firms to enter the tightly regulated banking sector.

The last time a new player entered the business was Yes Bank in 2004, as the RBI had kept barriers high to the sector to protect depositors and to ensure the stability of the financial system.

Private sector companies, public sector groups and non-banking finance companies are eligible to apply for new bank licences by July 1 by setting up non-operative financial holding companies, the central bank said.

The minimum equity capital required for setting up a bank under the new rules is Rs. 500 crore. Also, foreign shareholding should not exceed 49 per cent in the first five years.

“At least half of the directors must not be connected to the founder groups. Also, the groups that apply should have a past record of sound credentials and be financially sound with a successful track record of 10 years,” it said. In 2011, the RBI released draft rules allowing companies, except those in real estate, to enter banking, but held back finalising the rules saying that it would require more regulatory powers before doing so.