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India Equity Research Reports, IPO and Stock News
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Banks/Financial Institutions
India
New bank licenses: A longer wait. RBI has clarified that the government will need to
make a couple of amendments to the Banking Regulation Act before inviting
applications for new branch licenses; the revised bill will be shortly placed in the
Parliament. Thus, we would likely need to wait longer for new bank licenses issuances.
In the draft guidelines, RBI continues to look at companies (NBFCs or otherwise) that
can focus on financial inclusion and have reasonably strong promoters, at least in the
initial stages of the bank. Thus, asset finance companies like Shriram Transport Finance,
Mahindra Finance and L&T Finance stand a good chance.
A longer wait for new banks
RBI has clarified that the government will need to make amendments to the Banking Regulation
Act before inviting applications for new branch licenses; the revised bill will be shortly placed in the
Parliament. Post this, RBI would set up a team which would be involved in a transparent selection
process of the new applicants. The due diligence of the promoters would be fairly stringent
(looking at promoter groups with strong backgrounds and that have successfully run 10 years of
their respective businesses). We believe this would result in a longer wait for new bank licenses
issuances.
On the positive side, RBI continues to look at companies (NBFCs or otherwise) that can focus on
financial inclusion and have reasonably strong promoters, at least in the initial stages of the bank.
Thus, asset finance companies like Shriram Transport Finance, Mahindra Finance and L&T Finance
stand a good chance.
Key highlights from the draft guidelines of issuing new bank licenses
�� Changes to regulation. RBI is unlikely to issue new licenses unless the following amendments
are made to the Banking Regulation Act. These include (1) removal of restriction of voting rights
and empowering RBI to approve the acquisition of shares and/or voting rights of 5% or more in
a bank to persons who are ‘fit and proper’. (2) empowering RBI to supersede the Board of
Directors of a bank so as to protect depositors’ interests; (3) facilitating consolidated supervision.
�� Exclusion of certain entities. Entities or groups that have significant (10% or more) income or
assets or both from/in activities (real estates and capital market activities, primarily broking
activities) taken together in the last three years, shall not be eligible to promote banks.
�� Rural focus on branch expansion and financial inclusion. The bank shall open at least 25%
of its branches in unbanked rural centers and submit a detailed business model focusing on
financial inclusion.
�� Stringent restrictions on inter-group transactions. Banking relationships with promoter
group entities, business associates, and the suppliers/customers are expected to be done at
‘arm’s length’ - exposure shall not exceed 10% (single entity in the promoter group) and shall
not exceed 20% (aggregate exposure to all the entities) of net worth. However, in case of
promoter groups having 40% or more assets/income from non financial businesses, banks
would need to maintain a minimum tangible security cover of 150%. The bank will have to file
a certified return on a quarterly basis of all exposures for amounts in excess of Rs10 mn.
Holding company structure to facilitate regulation; promoter dilution in time
The bank will be a wholly-owned Non-Operative Holding Company (NOHC regulated by RBI)
which will hold the bank as well as all the other financial services companies regulated by
RBI or other financial sector regulators. Existing businesses can be merged or a separate
bank would be created depending on the underlying businesses of the promoter. We believe
that a transfer of assets would require some dispensation for compliance with CRR and SLR
requirements.
Ownership by the NOHC on the bank would be reduced in various stages from the date of
licensing.
�� Upto five years: A minimum 40% of the paid-up capital. Any excess over 40% would be
reduced to 40% within two years. The bank will need to list within two years of the date
of licensing. The NOHC would need to participate on the enlarged capital, if any, during
this period to maintain at 40% levels. Aggregate foreign shareholding (FDI, NRI, FII) shall
not exceed 49% for the first five years.
�� End of 10th year. 20% of the paid-up capital. Foreign shareholding will be allowed upto
a ceiling of 74% of the paid-up capital.
�� End of 12th year. 15% of the paid-up capital
CAR of 12% in first three years
The bank would need an initial minimum paid-up capital for a new bank to be Rs5 bn. The
bank shall be required to maintain a minimum capital adequacy ratio of 12% for a minimum
period of three years after the commencement of its operations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Banks/Financial Institutions
India
New bank licenses: A longer wait. RBI has clarified that the government will need to
make a couple of amendments to the Banking Regulation Act before inviting
applications for new branch licenses; the revised bill will be shortly placed in the
Parliament. Thus, we would likely need to wait longer for new bank licenses issuances.
In the draft guidelines, RBI continues to look at companies (NBFCs or otherwise) that
can focus on financial inclusion and have reasonably strong promoters, at least in the
initial stages of the bank. Thus, asset finance companies like Shriram Transport Finance,
Mahindra Finance and L&T Finance stand a good chance.
A longer wait for new banks
RBI has clarified that the government will need to make amendments to the Banking Regulation
Act before inviting applications for new branch licenses; the revised bill will be shortly placed in the
Parliament. Post this, RBI would set up a team which would be involved in a transparent selection
process of the new applicants. The due diligence of the promoters would be fairly stringent
(looking at promoter groups with strong backgrounds and that have successfully run 10 years of
their respective businesses). We believe this would result in a longer wait for new bank licenses
issuances.
On the positive side, RBI continues to look at companies (NBFCs or otherwise) that can focus on
financial inclusion and have reasonably strong promoters, at least in the initial stages of the bank.
Thus, asset finance companies like Shriram Transport Finance, Mahindra Finance and L&T Finance
stand a good chance.
Key highlights from the draft guidelines of issuing new bank licenses
�� Changes to regulation. RBI is unlikely to issue new licenses unless the following amendments
are made to the Banking Regulation Act. These include (1) removal of restriction of voting rights
and empowering RBI to approve the acquisition of shares and/or voting rights of 5% or more in
a bank to persons who are ‘fit and proper’. (2) empowering RBI to supersede the Board of
Directors of a bank so as to protect depositors’ interests; (3) facilitating consolidated supervision.
�� Exclusion of certain entities. Entities or groups that have significant (10% or more) income or
assets or both from/in activities (real estates and capital market activities, primarily broking
activities) taken together in the last three years, shall not be eligible to promote banks.
�� Rural focus on branch expansion and financial inclusion. The bank shall open at least 25%
of its branches in unbanked rural centers and submit a detailed business model focusing on
financial inclusion.
�� Stringent restrictions on inter-group transactions. Banking relationships with promoter
group entities, business associates, and the suppliers/customers are expected to be done at
‘arm’s length’ - exposure shall not exceed 10% (single entity in the promoter group) and shall
not exceed 20% (aggregate exposure to all the entities) of net worth. However, in case of
promoter groups having 40% or more assets/income from non financial businesses, banks
would need to maintain a minimum tangible security cover of 150%. The bank will have to file
a certified return on a quarterly basis of all exposures for amounts in excess of Rs10 mn.
Holding company structure to facilitate regulation; promoter dilution in time
The bank will be a wholly-owned Non-Operative Holding Company (NOHC regulated by RBI)
which will hold the bank as well as all the other financial services companies regulated by
RBI or other financial sector regulators. Existing businesses can be merged or a separate
bank would be created depending on the underlying businesses of the promoter. We believe
that a transfer of assets would require some dispensation for compliance with CRR and SLR
requirements.
Ownership by the NOHC on the bank would be reduced in various stages from the date of
licensing.
�� Upto five years: A minimum 40% of the paid-up capital. Any excess over 40% would be
reduced to 40% within two years. The bank will need to list within two years of the date
of licensing. The NOHC would need to participate on the enlarged capital, if any, during
this period to maintain at 40% levels. Aggregate foreign shareholding (FDI, NRI, FII) shall
not exceed 49% for the first five years.
�� End of 10th year. 20% of the paid-up capital. Foreign shareholding will be allowed upto
a ceiling of 74% of the paid-up capital.
�� End of 12th year. 15% of the paid-up capital
CAR of 12% in first three years
The bank would need an initial minimum paid-up capital for a new bank to be Rs5 bn. The
bank shall be required to maintain a minimum capital adequacy ratio of 12% for a minimum
period of three years after the commencement of its operations.
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