RBI issued guidelines in February which banking aspirants have to conform to in order to enter the sector. However, there were many grey areas within the guidelines which led RBI to invite queries till April 10. Many of the queries received by RBI came in on the last day leaving the central bank rushing against time to respond to the questions raised.
Sources told FE that while clarifications have been sought on a number of diverse aspects, a large number of queries emerging from corporate groups are centered around the structure of the holding company which has been proposed by RBI.
In its guidelines, RBI had said that those entities having a successful track record of 10 years and good credential only can set up a bank through a NOFHC (non-operative financial holding company). This entity must also have diversified ownership with 51% public shareholding.
Sources say conglomerates like Tatas and Reliance may find it difficult to carve out a holding company which is 51% held by the public and also meets all the other criteria attached to the holding company such as the 10 year successful track record required.
Others like Reliance Capital that have existing foreign investors like Nippon Life may face complications as their existing investors may not be keen on entering into the banking business under the existing entities.
Their approach is of course sound, they have taken the most pure form of structure which does not have any element of contagion risk in it, said Ashwin Parekh, partner, Ernst & Young. But when you create corporate structures, there are legacy issues. There are innumerable collaborations by industrial houses, out of which the new bank has to be carved out, he added.
Questions have also been posed around what RBI considers as "speculative activities." The final guidelines suggest RBI may not be comfortable giving licences to groups engaged in speculative business, but it gave no indication on what benchmarks it will use to judge speculation.
Another query pertains to foreign holdings allowed in the new banks that have been capped at 49%, but questions remains on the treatment of direct and indirect foreign holdings, says Shinjini Kumar of Pricewaterhousecoopers. This could be a concern for entities like Reliance Capital where there are existing foreign partners to be considered.
NBFCs too have their set of concerns and questions which they have submitted to RBI. Reliance Capital and Bajaj Finance have both sought clarifications. Bajaj Finance head Rajiv Jain has submitted a query asking whether the leeway in financial inclusion given to non-banking finance companies who converted to banks during 1991 will be considered this time around as well.
Applicants have also questioned whether financial inclusion plans would be only judged on the basis on inclusion plans for rural areas or would RBI give due consideration to urban financial inclusion plans as well.
February 28, 2011: Pranab Mukherjee announces intent to issues new bank licences
February 22, 2013: RBI releases final guidelines for licensing of new banks
April 1,0 2013: RBI invites queries from interested parties
Mid-end May 2013: RBI due to put out response to queries in public domain
July 1: Deadline to recieve applications for new licences