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The RBI's draft guidelines on private sector bank licenses require a: (1) Non-Operative
Holding Company (NOHC) structure; (2) minimum capital requirement of Rs5bn; and (3)
initial foreign holding cap of 49% (of equity). Within our coverage universe Aditya Birla Nuvo
(Buy) appears to fit the candidature.
Bank licence to be held by NOHC; exposure limits set
The bank licence will be held by the promoter or promoter group through a 100% owned
Non-Operative Holding Company (NOHC). All financial services companies of the promoter
(including the bank) will be held as a part of this NOHC. Financial services companies held
by the promoter or promoter group would not have a share holding in the NOHC as per the
draft guidelines.
Existing NBFCs, may be permitted to either promote a new bank or convert themselves into
a bank. The bank licence to existing NBFCs will be given only via the NOHC route.
However, the draft guidelines exclude players who derive greater than or equal to 10% of
income and/or assets from stock broking and real estate collectively.
The exposure of the bank to a promoter group entity has been fixed at 10% of networth.
Aggregate exposure to all group entities collectively has been fixed at 20% of networth.
New private sector banks who receive license in the current round will need to open at least
25% of branches in un-banked rural centres. NBFC candidates will be allowed to convert
their existing branch network in tier-3 to tier-6 centres into bank branches. The RBI's
permission will be needed to upgrade branches in tier-1 and tier-2 centres.
Minimum capital requirement raised to Rs 5bn; Foreign holding capped at 49%
The guidelines set the minimum capital requirement for a new bank at Rs 5bn (vs. Rs 3bn for
incumbent banks).
Share holding in the bank by the NOHC (promoter/promoter group owned) will need to be
brought down to 40% (of net-worth) after the initial two years (mandatory listing within two
years), 20% after 10 years and 15% within 12 years of receiving the license.
The draft report proposes capping foreign holding (FII, FDI and NRI) at 49% (of net-worth) in
the first five years of establishment. In later years, foreign share holding would be raised to
74% of networth (74% of networth currently for incumbent private sector banks).
Implications for our coverage universe
Overall, we find the draft guidelines to be too broad-based for us to be able to make a meaningful
conclusion on likelihood of success of interested candidates and the resultant implication on the
banking sector's competitive environment.
Within our NBFC coverage universe, Aditya Birla Nuvo (Buy) appears to fit the candidature for a
bank licence. We note that in June 2011, the company's management had stated its interest in
applying for a bank licence.
We also note that Infrastructure financier IDFC (Buy) has repeatedly stated its lack of interest in
converting into a bank. On the other hand PFC (Buy) recently began a bidding process to appoint
a consultant to guide it through the bank licence application process.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The RBI's draft guidelines on private sector bank licenses require a: (1) Non-Operative
Holding Company (NOHC) structure; (2) minimum capital requirement of Rs5bn; and (3)
initial foreign holding cap of 49% (of equity). Within our coverage universe Aditya Birla Nuvo
(Buy) appears to fit the candidature.
Bank licence to be held by NOHC; exposure limits set
The bank licence will be held by the promoter or promoter group through a 100% owned
Non-Operative Holding Company (NOHC). All financial services companies of the promoter
(including the bank) will be held as a part of this NOHC. Financial services companies held
by the promoter or promoter group would not have a share holding in the NOHC as per the
draft guidelines.
Existing NBFCs, may be permitted to either promote a new bank or convert themselves into
a bank. The bank licence to existing NBFCs will be given only via the NOHC route.
However, the draft guidelines exclude players who derive greater than or equal to 10% of
income and/or assets from stock broking and real estate collectively.
The exposure of the bank to a promoter group entity has been fixed at 10% of networth.
Aggregate exposure to all group entities collectively has been fixed at 20% of networth.
New private sector banks who receive license in the current round will need to open at least
25% of branches in un-banked rural centres. NBFC candidates will be allowed to convert
their existing branch network in tier-3 to tier-6 centres into bank branches. The RBI's
permission will be needed to upgrade branches in tier-1 and tier-2 centres.
Minimum capital requirement raised to Rs 5bn; Foreign holding capped at 49%
The guidelines set the minimum capital requirement for a new bank at Rs 5bn (vs. Rs 3bn for
incumbent banks).
Share holding in the bank by the NOHC (promoter/promoter group owned) will need to be
brought down to 40% (of net-worth) after the initial two years (mandatory listing within two
years), 20% after 10 years and 15% within 12 years of receiving the license.
The draft report proposes capping foreign holding (FII, FDI and NRI) at 49% (of net-worth) in
the first five years of establishment. In later years, foreign share holding would be raised to
74% of networth (74% of networth currently for incumbent private sector banks).
Implications for our coverage universe
Overall, we find the draft guidelines to be too broad-based for us to be able to make a meaningful
conclusion on likelihood of success of interested candidates and the resultant implication on the
banking sector's competitive environment.
Within our NBFC coverage universe, Aditya Birla Nuvo (Buy) appears to fit the candidature for a
bank licence. We note that in June 2011, the company's management had stated its interest in
applying for a bank licence.
We also note that Infrastructure financier IDFC (Buy) has repeatedly stated its lack of interest in
converting into a bank. On the other hand PFC (Buy) recently began a bidding process to appoint
a consultant to guide it through the bank licence application process.
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