New bank licences likely by March 31: Key takeaways

The RBI yesterday issued a clarifications on its guidelines governing new banking licences. The central bank got 443 queries from 34 individuals and organisations. India is likely to give new bank licences by March 31, 2014, Rajiv Takru, secretary of financial services, told CNBC-TV18 today.

The important points

1. Companies, once they get the licence, can set up banks in 18 months. This was earlier 12 months.

2. The deadline for submitting applications is 1 July.

3. The RBI will be very selective, will look for high quality applications. Therefore, meeting all the eligibility criteria will not naturally get a company the licence.

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4. Before giving licences, the RBI will seek feedback about the applicant from various regulators and investigating agencies, such as Sebi, IRDA, CBI and enforcement directorate.

5. Finance companies have to set up a non-operating financial holding company (NOFHC), which will own the bank all the financial services businesses that come under the RBI purview. Applicants who come under other regulators, like IRDA, will have to approach their respective regulator which will decide whether the operation should come under the NOFHC.

6. NOFHC should be held by publicly held companies. This norm will keep those companies with majority promoter holding out of the race.

7. No relaxation will be granted to new licensees on maintaining CRR and SLR; lending to the priority sector; and opening branches in unbanked areas. The RBI stipulates that 40 percent of a bank’s lending should be to the priority sector, which includes agriculture.

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8. On priority sector lending, the RBI says: “For example, if ‘in-principle’ approval is granted in February 2014, the bank has to commence banking business latest by August 2015. In that case, the bank has to maintain priority sector by March 31, 2017, on the credit base as of March 31, 2016. In such a scenario about 37 months would be available to the promoters/promoter groups to achieve the target,” RBI said.

What aspirants say

NBFCs may find it difficult to conform to the guidelines, says a ToI report. They can set up a bank only after they transfer their existing business to a new company and also create an NOFHC. Eighteen months may be too little a time for these companies to restructure, the report said. For corporates, the challenge will be to meet the priority sector lending target and opening of branches in unbanked areas.

G.S. Sundararajan, group director, Shriram Group, one of the companies that has expressed keenness to apply for the licence, termed the guidelines as discouraging.Shriram Capital board will meet on 20 June to decide whether to apply for a banking licence.

Companies with already a holding company structure in place will find it easier. One such is Religare Enterprises.

“We were clear about the criteria that RBI had put out in its guidelines and we met all of them,” Religare Enterprises group chief executive Sachindra Nath has been quoted as saying in a Mint report.

What experts say

Experts have hailed the clarifications. According to Ashvin Parekh quoted in the ToI report, “they have reduced the discretionary points in appraising the applications”.

Naresh Makhijani of KPMG India, has been quoted as saying in the Mint report that the time provided by the RBI to meet the priority sector lending norms is enough."… (The) RBI has extended the operationalizing period so that the new bank has enough time to align itself with what RBI wants," he has told the newspaper.

A partner from a consulting firm has been quoted as saying in an ET report that as the RBI norms are stringent, only serious players will apply for the licence. “It is a huge challenge for corporates to implement the proposed structure,” he has been quoted as saying. According to him, Manipal Group with Janalakshmi Financial Services and Mohandas Pai and Religare Enterprises “have an edge over others”.