RBI releases draft norms for universal bank licences on tap

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Mumbai | Published: May 6, 2016 5:23:57 AM

Individuals with 10-year experience may apply

The Reserve Bank of India (RBI) on Thursday released draft guidelines for on-tap licensing of universal banks in the private sector, allowing individuals with 10 years of experience in banking and finance to apply for a licence.

Apart from individuals, existing NBFCs controlled by residents having a successful track record for at least 10 years are eligible to apply for a licence.

“Entities in the private sector that are owned and controlled by residents and have a successful track record for at least 10 years, provided that if such entity has total assets of Rs 5,000 crore or more, the non-financial business of the group does not account for 40% or more in terms of total assets in terms of gross income,” the central bank said.

According to the draft guidelines, the initial minimum paid-up voting equity capital required is Rs 500 crore, and thereafter the bank should maintain a minimum net worth of Rs 500 crore at all times.

“The promoters and the promoter group shall hold a minimum of 40% of the paid-up voting equity capital of the bank which shall be locked in for a period of five years from the date of commencement of business of the bank,” the RBI said, adding that the promoter group’s shareholding shall be brought down to 15% within a period of 12 years from the date of commencement of business of the bank.

Initially, applications will be screened by the RBI to assess the eligibility of applicants with regard to the criteria laid down in the guidelines. “RBI may apply additional criteria to determine the suitability of applications, in addition to the ‘fit and proper’ criteria,” it said.

Thereafter, applications will be referred to a standing external advisory committee (SEAC) to be set up by the RBI. The SEAC will comprise eminent persons with experience in banking, financial sector and other relevant areas and will have a tenure of three years. The SEAC will set up its own procedures for screening applications and will meet as and when required.

“The committee will reserve the right to call for more information as well as have discussions with any applicants and seek clarification on any issue as may be required by it,” RBI said.

The committee will then submit its recommendations to the central bank for consideration. However, the decision to issue an in-principle approval for setting up of a bank will be taken by the RBI.

“The validity of the in-principle approval issued by RBI will be 18 months from the date of granting in-principle approval and would thereafter lapse automatically,” it explained.

According to the guidelines, an applicant who has not been found suitable for issue of licence will not be eligible to make an application for a banking licence for a period of three years from the date of that decision.

In the first bi-monthly monetary policy statement 2014-15 announced on April 1, 2014, had announced that RBI will start working on the framework for on-tap licensing as well as differentiated bank licences.

New initiative

Eligible promoters

Existing NBFCs that are ‘controlled by residents’ and have a successful track record for at least 10 years. Individuals or professionals who are ‘residents’ and have 10 years of experience in banking and finance. Entities in the private sector that are ‘owned and controlled by residents’ and have a successful track record for at least 10 years, provided that if such entity has total assets of  R 5,000 crore or more, the non-financial business of the group does not account for 40% or more in terms of total assets in terms of gross income

Minimum capital requirement

The initial minimum paid-up voting equity capital for a bank shall be R500 crore. Thereafter, the bank shall have a minimum net worth of R500 crore at all times.
The promoters and the promoter group/NOFHC shall hold a minimum of 40% of the paid-up voting equity capital of the bank which shall be locked-in for a period of five years from the date of commencement of business of the bank. The promoter group shareholding shall be brought down to 15% within a period of 12 years from the date of commencement of business of the bank.

Foreign shareholding in the bank

The foreign shareholding in the bank would be as per the existing foreign direct investment (FDI) policy subject to the minimum promoter shareholding requirement.

Listing requirement

The bank shall get its shares listed on the stock exchanges within six years of the commencement of business by the bank. The bank shall open at least 25% of its branches in unbanked rural centres (population up to 9,999 as per the latest census).

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