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financial and business service

banking

Final guidelines mandate Rs.500 cr. as minimum capital.

Large industrial houses, whose income from non-banking sources is over 40 per cent of total will not be eligible to set up a universal bank in the country, the Reserve Bank of India (RBI) said on Monday. However, they are allowed to pick up 10 per cent stake in banks.
Final guidelines
In the final guidelines on on-tap licensing, the central bank has allowed individuals with 10 years of experience in banking and finance, as well as business groups with 10 years’ track record to promote universal banks. For business groups with more than Rs.5,000 crore in total assets to be eligible for a licence, their income from non-financial businesses should not account for 40 per cent or more in terms of total assets/in terms of gross income.
“Large industrial houses are excluded as eligible entities but are permitted to invest in the banks up to 10 per cent,” RBI said in its guidelines statement.The existing non-banking financial companies (NBFCs) that are controlled by residents and have a successful track record for at least 10 years will also be eligible. However, an NBFC, which is a part of the group where the non-financial business of the group accounts for 40 per cent or more in terms of total assets/gross income, is not eligible, the banking regulator clarified.
The bank should have a minimum capital of Rs.500 crore and should list on the stock exchanges within six years of commencing operations, RBI said. The bank shall open at least 25 per cent of its branches in unbanked, rural centres. The bank should also maintain a capital adequacy ratio of 13 per cent in the first three years of operation as compared to 9 per cent in existing banks.
NOFHC requirement
Setting up of a non-operative financial holding company (NOFHC) has not been made mandatory for individuals and standalone promoting entities that do not have any other group entities. For others, the RBI has mandated that at least 51 per cent stake in the NOFHC should be owned by the promoter group.
“No shareholder, other than the promoters/promoter group, shall have significant influence and control in the NOFHC,” the norms said.
The promoters should hold a minimum of 40 per cent stake in the bank, locked-in for a period of five years, but the stake should be brought down to 15 per cent within 15 years.
After setting up the bank, the NOFHC will not be allowed to set up any financial services entity for three years, the RBI said.
A Standing External Advisory Committee (SEAC) will be set up by the RBI to vet the applications. The committee would send its recommendations to the Internal Screening Committee (ISC), consisting of the Governor and Deputy Governors. The ISC would then submit its recommendations to the Committee of the Central Board of RBI for the final decision to issue an in-principle approval, which would be valid for 18 months.
Unsuccessful applicants can appeal against the decision to the Central Board of Directors, within one month of being rejected. Names of applicants and successful candidates would be made public, the RBI said.