RBI Draft Guidelines for Licensing of New Banks in the Private Sector::Unicon

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RBI Draft Guidelines for Licensing of New Banks in the Private Sector

Key Highlights of the draft guidelines are:

Eligible promoters: Entities / groups in the private sector, owned and controlled by residents, with diversified ownership, sound credentials and integrity and having successful track record of at least 10 years will be eligible to promote banks. Entities / groups having significant (10% or more) income or assets or both from real estate construction and / or broking activities individually or taken together in the last three years will not be eligible.

Corporate structure: New banks will be set up only through a wholly owned Non-Operative Holding Company (NOHC) to be registered with the Reserve Bank as a non-banking finance company (NBFC) which will hold the bank as well as all the other financial companies in the promoter group.

Minimum capital requirement: Minimum capital requirement will be INR 5 Bn. Subject to this; actual capital to be brought in will depend on the business plan of the promoters. NOHC shall hold minimum 40% of the paid-up capital of the bank for a period of five years from the date of licensing of the bank. Shareholding by NOHC in excess of 40% shall be brought down to 20% within 10 years and to 15% within 12 years from the date of licensing of the bank.

Non-Banking Finance Companies - RBI working group recommendations

The RBI working group has recommended changes regarding registration, capital adequacy and prudential norms. Tier-1 capital requirement is to be raised to 12% (from 7.5%), asset classification and prudential norms would be, in a phased way, rendered similar as those for banks.

The minimum net owned fund (NOF) requirement for all new NBFCs wanting to register with the Reserve Bank could be retained at the present INR 20 mn till the RBI Act is amended. The RBI should, however, insist on a minimum asset size of more than INR 500 mn for registering any new NBFC. Existing NBFCs below this limit may deregister or be asked to seek a fresh certificate of registration at the end of two years. Negative for small NBFCs.

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