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New draft guidelines for bank licenses
RBI’s revised draft for issue of new banking licenses may open gates
for Indian corporate groups (except real estate and broking) to setup
banks. However, NBFCs may find it tougher as they may have to
merge existing financial businesses with the bank. The focus is on
extending financial inclusion, but minimum capital requirement has
been lowered to Rs5bn (from Rs10bn indicated previously). Final
guidelines will be issued after certain amendments are made to the
Banking Regulation Act. Highlights from the draft are given below:
Who may apply for a new bank license? Private sector groups that are (1)
owned and controlled by residents, (2) with diversified ownership, (3) sound
credentials and integrity and (4) having successful track record of at least 10
years will be eligible to promote banks. Groups engaged only in two sectors
(1) real estate construction and/ or (2) capital market, especially broking
(where income and/ or assets form 10% of total- individually or together) are
restricted from applying for a license; earlier RBI had put only the real estate
sector on the negative list.
Positive for corporate groups, but tougher for NBFCs: It appears that
RBI has opened-up to allowing non-financial groups to apply for banking
licenses provided they are not engaged in the real estate and/ or broking
businesses. However, new guidelines may compel NBFCs, which plan to apply
for banking license, either to merge operations into bank OR convert into a
bank. This may impact their profitability as it will result in more stringent
norms on aspects like (1) branch authorisation (2) reserve requirements, (3)
priority sector lending norms and (4) sectoral exposures.
Holding company structure: Promoter will be permitted to set up a new
bank only through a wholly-owned Non-Operative Holding Company (NOHC),
to be registered as NBFC with RBI, which will hold the bank as well as all the
other financial services companies regulated by RBI or other regulators.
Minimum capital requirement will be Rs5bn (lower than previous proposal
of Rs10bn; but higher than current norm of Rs1bn). The bank shall be
required to maintain a minimum capital adequacy ratio of 12% for a minimum
period of 3 years.
Shareholding- promoters: The NOHC (i.e. promoter) will need to hold at
least 40% for the first five years. Additionally, (1) more than 40% holding will
need to be brought down to 40% within two years and (2) total promoter
holding will need to be diluted to 15% over 12 years.
Shareholding- foreign and minority: The non-resident shareholding from
FDI, NRI and FII in the new private sector banks shall not exceed 49% for the
first 5 years from the date of licensing of the bank. After the expiry of 5
years, the foreign shareholding would be as per the extant policy i.e. 74%.
No single entity or group of related entities, other than the NOHC, shall have
shareholding or control, directly or indirectly, in excess of 10% of the paid up
capital of the bank.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
New draft guidelines for bank licenses
RBI’s revised draft for issue of new banking licenses may open gates
for Indian corporate groups (except real estate and broking) to setup
banks. However, NBFCs may find it tougher as they may have to
merge existing financial businesses with the bank. The focus is on
extending financial inclusion, but minimum capital requirement has
been lowered to Rs5bn (from Rs10bn indicated previously). Final
guidelines will be issued after certain amendments are made to the
Banking Regulation Act. Highlights from the draft are given below:
Who may apply for a new bank license? Private sector groups that are (1)
owned and controlled by residents, (2) with diversified ownership, (3) sound
credentials and integrity and (4) having successful track record of at least 10
years will be eligible to promote banks. Groups engaged only in two sectors
(1) real estate construction and/ or (2) capital market, especially broking
(where income and/ or assets form 10% of total- individually or together) are
restricted from applying for a license; earlier RBI had put only the real estate
sector on the negative list.
Positive for corporate groups, but tougher for NBFCs: It appears that
RBI has opened-up to allowing non-financial groups to apply for banking
licenses provided they are not engaged in the real estate and/ or broking
businesses. However, new guidelines may compel NBFCs, which plan to apply
for banking license, either to merge operations into bank OR convert into a
bank. This may impact their profitability as it will result in more stringent
norms on aspects like (1) branch authorisation (2) reserve requirements, (3)
priority sector lending norms and (4) sectoral exposures.
Holding company structure: Promoter will be permitted to set up a new
bank only through a wholly-owned Non-Operative Holding Company (NOHC),
to be registered as NBFC with RBI, which will hold the bank as well as all the
other financial services companies regulated by RBI or other regulators.
Minimum capital requirement will be Rs5bn (lower than previous proposal
of Rs10bn; but higher than current norm of Rs1bn). The bank shall be
required to maintain a minimum capital adequacy ratio of 12% for a minimum
period of 3 years.
Shareholding- promoters: The NOHC (i.e. promoter) will need to hold at
least 40% for the first five years. Additionally, (1) more than 40% holding will
need to be brought down to 40% within two years and (2) total promoter
holding will need to be diluted to 15% over 12 years.
Shareholding- foreign and minority: The non-resident shareholding from
FDI, NRI and FII in the new private sector banks shall not exceed 49% for the
first 5 years from the date of licensing of the bank. After the expiry of 5
years, the foreign shareholding would be as per the extant policy i.e. 74%.
No single entity or group of related entities, other than the NOHC, shall have
shareholding or control, directly or indirectly, in excess of 10% of the paid up
capital of the bank.
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