Conglomerates Barred From India Bank Industry Under Draft Rules

However, as per the draft guidelines issued by the RBI for on-tap licensing for universal banks, NBFCs can apply for universal bank licences.

By putting universal bank licences on-tap, it is taking the attempt to encourage a more diverse and competitive sector a step further.

Earlier, RBI was opening up the licence process periodically.

The RBI is okay with the existing non-banking financial companies (NBFCs) that are “controlled by residents” and have a successful track record for at least 10 years applying for a licence.

Eligible promoters include existing non-banking financial companies (NBFCs) that are “controlled by residents” and have a successful track record for at least 10 years or individuals or professionals who are “residents” and have 10 years of experience in banking and finance.

Moving towards an on-tap licensing regime, the RBI today proposed to allow professionals with 10 years of experience to promote full-fledged banks, but large business houses can come in only as investors with less than a 10 per cent stake.

“The initial minimum paid-up voting equity capital for a new bank shall be ‘500 crore and the bank shall have a minimum net worth of ‘500 crore at all times”. This is a departure from the central bank’s 2013 guidelines that said any entity in the private sector could seek a licence.

The corporate group has to float the bank through a non-operative financial holding company (NOFHC).

The promoter/s and the promoter group/NOFHC, as the case may be, shall hold a minimum of 40% of the paid-up voting equity capital of the bank, which shall be locked in for five years from the date of commencement of business of the bank.

Promoters will also be scrutinized based on central bank’s fit and proper criteria. Individuals or a standalone promoting entity need not have an NOFHC to set up a bank, RBI said. “Large industrial/business houses are excluded as eligible entities but permitted to invest in the banks to the extent of less than 10 per cent”, the RBI said. Individuals or firms directly or indirectly linked with large groups should not have any director on the bank board on account of shareholder agreements or otherwise, it said. The bank shall comply with the priority sector lending targets and sub-targets as applicable to the existing domestic scheduled commercial banks.

NOFHC are now required to be owned by the promoter or promoter group to the extent of at least 51 per cent of the total paid-up equity capital, instead of being wholly-owned by the promoter group. The question here is can RBI ensure a few corporations do not act in concert to take indirect control of a bank. Besides issuing licences to Bandhan and IDFC, Rajan has also created two new categories of lenders-small finance banks and payment banks-and has given final or in-principle approval to about 20 companies to set up such banks.

On-tap licensing means that the RBI window for granting licences will be open through the year.