Tatas, Ambani, Bajajs may not be eligible for on-tap bank licences; here is why

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Updated: May 6, 2016 1:31:15 PM

On-tap bank licences: The RBI has allowed resident individuals and professionals having 10 years of experience in banking and finance as eligible persons to promote universal banks.

on-tap bank licences by RBIOn-tap bank licences: The RBI has allowed resident individuals and professionals having 10 years of experience in banking and finance as eligible persons to promote universal banks. (Photo: Reuters)

The Reserve Bank of India (RBI) on Thursday issued draft norms for on-tap licensing for universal banks.

Universal banks
Universal bank provide a wide variety of financial services, including both commercial and investment services. Universal banking is common in some European countries, including Switzerland. These banks may offer credit, loans, deposits, asset management, investment advisory, payment processing, securities transactions, underwriting and financial analysis. Banks in a universal system may still choose to specialize in a subset of banking services.

What on-tap licensing means
On tap licensing means there will not be any cut-off date for applying for the licences. This will set stiff conditions for industrial houses that aspire to become banks and top industrial groups, which once harboured ambitions of starting a universal bank in the country, will no longer be eligible to apply for a universal bank licence. Earlier, RBI was opening up the licence process periodically.

Who is eligible
Though, the broad contours of the draft norms are in line with guidelines issued for bank licensing in 2013, the central bank has now made it clear that business houses predominantly in financing activities, for example, non-banking financial companies (NBFCs) would be preferred. Existing NBFCs that are “controlled by residents” and have a successful track record of at least 10 years are among those that can apply for on-tap licences. In addition, individuals and professionals, who are residents and have 10 years of banking experience, can also now apply for a licence.

Who is not eligible
The RBI said a group with assets worth Rs 5,000 crore or more with the non-financial business accounting for 40 per cent or more in terms of total assets or gross income will be treated as a large industrial house. This means many top business houses including the Tatas, the Bajajs, the Ambanis and the Mahindras may not be eligible. 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. Unveiling the draft guidelines, the RBI, in a departure from the earlier guidelines on universal banks in 2013, allowed resident individuals and professionals having 10 years of experience in banking and finance as eligible persons to promote universal banks.

Who can seek these licences
-Resident individuals and professionals having 10 years of experience in banking and finance.
-NBFCs controlled by residents with at least 10 years track record
– Groups with assets of Rs 5,000 cr or more and the non-financial business of the group not accounting for 40 per cent or more in terms of assets or income
-Barred: Groups with assets of Rs 5,000 cr or more with the non-financial business not accounting for 40 per cent or more in assets or income

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