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The Reserve Bank of India (RBI) said on Monday in a clarification to queries on new bank licences that the validity of in-principle approval for new banks has been extended to 18 months from one year.
The RBI issued guidelines in February allowing any type of company to set up a bank in India, paving the way for a new set of private banks since the formation of Yes Bank in 2004.
Applicants must take approval from other regulators to bring in entities regulated by them under the bank holding company, the RBI said.
RBI also said aspirants from the NFBC/insurance spaces will have to get the go-ahead from their regulators concerned like Sebi and Irda and that their views on the same will
prevail over the RBI’s own views on the proposed non-operative financial holding company (NOFHC), which is the first and foremost criterion for having a bank licence.
Corporate houses and public sector entities like the Anil DhirubhaiAmbani Group, Larsen & Toubro, Tatas, Mahindra and Mahindra, Life Insurance Corporation and AdityaBirla Group can enter the banking business. However, it’s up to RBI to evaluate if the applicant is fit and proper.
RBI also said it will not be possible for it to issue licences to all eligible applicants, making it tougher for aspirants to enter into the banking fray. RBI will look for very high quality applications to launch new banks which requires promoters/promoter groups to have a successful track record of running their business for at least 10 years, RBI said in its elaborate clarifications.It further said, “essentially, the intention is that existing groups should set up banks and not groups set up for this purpose.
Impact Shorts
More ShortsThe RBI also ruled out any specific number of licences that would be given to applicants and a timeline to do so.
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The central bank also said applicants must have public shareholding of at least 51 percent.
For conglomerates, only non-financial services companies and non-operative financial holding companies will be allowed to hold shares of the bank holding company.
The central bank’s move to issue licences is intended to increase banking penetration in a country where only about half of the population has access to banking services. India has about one-fourth the ratio of branches to adults compared with Brazil.
New aspirants would not be granted any regulatory exemption (or forbearance) in respect of prudential/exposure norms. Banks need to have 25 percent of the branches in unbanked rural centres with population up to 9,999. This clause is seen as a major hurdle for big corportes to set up a bank. The conversion of existing NBFC branches into bank branches would be automatically permitted for tier 2 to 6 centres. The number of ultra small branches and number of branches in tier 2 to 6 centres, would be as per the business plans of the promoters/promoter group and requirement of the new bank.
New banks also have to maintain their priority lending targets currently pegged at 40 percent of of adjusted net bank credit.
If any HFC wants to apply for a banking licence, it will have to merge its lending business into the new bank.
“Lending activities must be conducted from inside the bank. Therefore, the housing finance activity of the HFC should be transferred to the bank under the NOFHC. The financial sector regulated entity which holds the HFC substantially will have to come under the NOFHC,” RBI said.
Commenting on RBI clarifications, Ernst & Young India partner and national leader banking and financial services Ashvin Parekh said: “Today’s clarifications have rendered a lot of clarity to the whole process and makes even more difficulty for many to finally get the licence. “The best part is that it has considerably reduced the element of discretion at the hands of the regulator and thus leaving limited rooms for disputes.”
Agencies
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