On-tap bank licences: RBI proposes 10 per cent stake for business houses

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

The draft guidelines, issued today, may upset the plans of several business houses who had lost out in the last round of distribution of universal bank licences and were eagerly waiting for on-tap regime to set up their own banks.

In a departure from the earlier norms on universal banks, the draft guidelines have made resident individuals and professionals having 10 years of experience in banking and finance as eligible for promoting universal banks.

“Large industrial or business houses are excluded as eligible entities but permitted to invest in the banks to the extent of less than 10 per cent” of paid up equity capital, which RBI has fixed at Rs 500 crore, as per the guidelines.

“The initial minimum paid-up voting equity capital for a new bank shall be Rs 500 crore and thereafter, the bank shall have a minimum net worth of Rs 500 crore at all times,” the central bank said.

While assuming charge on September 4, 2013, Governor Raghuram Rajan had said one of his key reform measures would to put bank licensing on-tap. He fulfilled a part of it in April 2014 by issuing in-principal approvals to two-infra lender IDFC and microfinancier Bandhan, out of 25 applicants. Both of them are operational since last year. These banks came in after a gap of over a decade.

Rajan took the second step by announcing in-principle nod to 10 payments banks and 11 small finance banks last year. At the last monetary policy in April, Rajan had said he would look at more differentiated banks like custodian banks and wholesale banks.

RBI said interested parties will have to float a non-operative financial holding company (NOFHC), which has now been made non-mandatory in case of promoters being individuals or standalone promoting/ converting entities who/ which do not have other group entities.

The NOFHC is 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 of the NOFHC, instead being wholly-owned by the promoter group, which was a necessity in the previous guidelines.