The Reserve Bank of India (RBI) on Friday issued the final guidelines for new bank licences, allowing any type of company to apply for a permit, paving the way for new banks after nine years.
RBI said it would allow applications till July 1. No specific industry was barred from applying, although draft rules issued in August 2011 had barred real estate companies and brokerages.
But the central bank has put stiff conditions. For example, the guidelines said a promoter group’s “business model should not be misaligned with the banking model” and its business should not potentially put the bank and the banking system at risk on account of “group activities which are speculative or subject to high asset price volatility”.
Many experts said real estate companies and brokerages would find these conditions onerous. DLF, the country’s largest real estate company, said it would not apply as it wanted to focus on its core business. Some non-banking financial companies could face a challenge, as RBI has not permitted the firms to carry out activities otherwise undertaken by banks. (NEW LENDER GUIDELINES)
The applications, expected to come in from Monday, will be screened by a high-level committee of external experts. A decision would be taken by the central bank.
RBI said successful applicants have a year to set up a bank. The new banks must make a stock market listing within three years — one year longer than proposed in the draft rules. The rules are intended to ring-fence a company’s regulated financial services operations, RBI said.
It said the aspirants will have to set up non-operative financial-holding companies (NOFHC), which should hold a minimum 40 per cent of the equity capital in the bank. This has to be reduced to 20 per cent within 10 years and 15 per cent in 12 years from the date of start of business. An NOFHC will be registered as a non-banking financial company with RBI and will be governed separately.
At least half the directors at such holding companies shouldn’t be connected to the founder groups, RBI said. “Entities, groups should have a record of sound credentials and integrity, be financially sound with a successful track record of 10 years.”
The minimum equity capital required for setting up a bank under the new rules is Rs 500 crore. Foreign shareholding shouldn’t exceed 49 per cent in the first five years. The new banks must open at least a fourth of its branches in rural areas – a condition, many experts said, almost impossible to achieve.
RBI said applicants meeting the eligibility criteria might not get a permit. Feedback on the applicants will be sought from enforcement and investigative agencies, it said. Public sector entities will be allowed to apply for a licence. The draft norms had talked about private sector entities only.
K R Kamath, chairman of Indian Banks Association and chief of Punjab National Bank, said the guidelines would increase competition and help in financial inclusion.
Companies that have expressed interest in setting up banks include L&T Finance Holdings, Aditya Birla Financial Services, Shriram Transport Finance, Tata Capital, Reliance Capital and Bajaj Finserv. Religare Enterprises and Mahindra Financial Services said on Friday they planned to apply for the licence.