The Reserve Bank of India (RBI) on Monday released the guidelines for on-tap licensing of universal banks in the private sector and allowed large industrial houses to invest up to 10% in them. “Individuals and companies, directly or indirectly connected with large industrial houses may be permitted to participate in the equity of a new private sector bank up to 10% and shall not have controlling interest in the bank,” the central bank said, adding that such shareholders shall not have any director on the board of the bank on account of shareholder agreements or otherwise.
The limit of 10%, it said, would apply to individuals and all inter-connected companies belonging to the concerned large industrial houses on an aggregate basis. A group with assets of R5,000 crore or more with the non-financial business of the group accounting for 40% or more in terms of total assets/in terms of gross income will be treated as a large industrial house.
The central bank allowed resident individuals and professionals with 10 years of experience in banking and finance at a senior level to promote universal banks.
While a non-operative financial holding company (NOFHC) is not mandatory for individual promoters or standalone promoting/converting entities who/which do not have other group entities, individual promoters /promoting entities/converting entities that have other group entities, will have to set up a bank only through an NOFHC.
The RBI said “existing non-banking financial companies (NBFCs) that are ‘controlled by residents’ and have a successful track record for at least 10 years” are eligible to promote a universal bank. Any NBFC, which is a part of the group that has total assets of R5,000 crore or more and that the non-financial business of the group accounts for 40% or more in terms of total assets/in terms of gross income, is not eligible.
The initial minimum paid-up voting equity capital for a bank has been fixed at R500 crore and thereafter the bank shall have a minimum net worth of R500 crore at all times.
“The promoters and the promoter group/NOFHC, as the case may be, 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,” it said, adding that the promoter group shareholding shall be brought down to 15% within 15 years.
The central bank said the foreign shareholding in the bank should be as per the existing foreign direct investment (FDI) policy subject to the minimum promoter shareholding requirement. At present, the aggregate foreign investment limit is 74%.
The bank will need to get listed within six years of the commencement of business. “The bank shall open at least 25% of its branches in un-banked rural centres (population up to 9,999 as per the latest census). The bank shall comply with the priority sector lending targets and sub-targets as applicable to the existing domestic scheduled commercial banks,” the RBI said.