space
space

Get in Touch

spacer(91)-20-49072626
Wednesday
Jun 03, 2015
subscribe
You are here article details
 

RBI Issues Guidelines For New Banking License

By Vidrum Mehta | 2/25/2013 4:41 PM Monday

The Reserve Bank of India (RBI) came out with its much-awaited final guidelines on the New Banking License. This has come approximately three years from the first announcement in this regard made in the Budget speech of 2010-2011 by the then Finance Minister (Pranab Mukherjee). Since then, there was a discussion paper which was formulated by the RBI and the floor was open for suggestions, feedback and comments on the same. Thereafter, draft guidelines on the licensing were released by the apex bank, and these were also open to accept further views and comments from the industry.

Finally, in December 2012, after some vital amendments to the Banking Bill, the RBI, in consultation with the Government of India, came out with its final guidelines on the new banking license.

Some of the key final guidelines for the licensing of new banks in the private sector are as follows:

  • All companies or groups, whether private or public sector entities, are eligible to set up a bank, however, only through a wholly-owned Non-Operative Financial Holding Company (NOFHC). With this provision, the bank’s business would not be impacted by the company's or group’s existing business.
  • Further, the entity or group should have a past record of sound credentials and integrity. The company should also have healthy financial track records of 10 years. Further, the RBI may also investigate the above matter and check whether every enclosure mentioned by the company is correct. With this, only companies which have a good financial track record, excellent management team and good corporate governance would be eligible for a license.
  • The minimum capital required to start up is Rs 500 crore, of which the NOFHC shall hold a minimum voting stake of 40% of the paid-up equity capital which will be locked in for a period of 5 years. Going ahead, its stake shall be bought down to 15% within 12 years. Also, the aggregate foreign holding in the new bank shall not exceed 49% in the first 5 years. Further, the bank’s shares should be listed on the stock exchange within 3 years of the commencement of its business. This clause would result in better efficiency in the management’s working and their decision-making abilities. 
  • The bank will be governed under various provisions, acts and other guidelines and instructions issued by the RBI.
  • There should be at least 50% independent directors on the Board of the bank. This would help it to take holistic and correct decisions in running its business. Further, if a promoter and its group are from a non-banking background, some of the independent directors would serve as the most important on the board.
  • The NOFHC and the bank should not have any exposure to the promoter group and its other entities. This would insulate the bank from various other risks that are associated with other businesses and check the practice of giving concessions or incentives to the promoter group in case they are in need of funds. Hence, this guideline is of utmost importance.
  • The bank shall open at least 25% of its branches in unbanked areas (population upto 9999 as per the latest census data) and comply with the priority sector lending targets (40% of total advances) and respective sub-targets (Agr, SME, MSME) as applicable to the existing domestic banks. This would further strengthen the overall aim of financial inclusion in the country.
  • Existing NBFCs, if eligible, may be permitted to promote new banks or convert themselves into banks.

Considering all these points and some other relevant conditions, the RBI has said that those entities or groups which wish to apply for a banking license can submit their application on or before July 1, 2013. In order to ensure transparency, the RBI would come out with a list of groups that have applied for the license after the last date of receipt of applications (July 1, 2013).

Post the submission of applications, all of them would be viewed by a high-level advisory committee which would submit their recommendations to the RBI. The final decision would then be taken by the RBI, which would then issue the new banking licenses. We believe that this would at least take 6-8 months (after the submission of applications) and the new licenses may be given in CY2014.

As per media reports, companies like Mahindra and Mahindra Financial Services (MMFS), IDFC, L&T Finance Holdings, Shriram Transport Finance, Reliance Capital and Tata Capital are among the probable candidates to apply for the license.

All in all, with the government on the fast track with the reforms process, this move does not come as much of a surprise. However, the momentum should be continued and the process should be carried through effectively and in a timely manner. While there would be stiff competition, the growth prospects for existing as well as new banks are robust as there is still significant untapped opportunity in banking. Watch this space for updates in this regard.

Find More Articles on: Markets, DSIJ Mindshare, Product, Large Cap

Related Readings

Information Requested is Not Found

Top 10 companies with Lowest Foreign Institutional Investors (FIIs) Holding in BSE 100 Companies

DSIJ.in Exclusive

LatestMost PopularMarket Action

Index Trends And Stocks In Action June 03, 2015

The Indian equity markets ended on dismal note despite the Reserve Bank of India cutting repo rate by 25bps. The main reason for the fall was due to RBI’s caution stance and weak monsoon forecast.

Market May Continue To Remain Under Pressure

Most Asian stocks fell as Japanese shares slid on a stronger yen and investors awaited the outcome of talks between Greece and its creditors. Japan's Nikkei lost 0.42% while Australia’s S&P/ASX 200 Index fell 0.1%, as did New Zealand’s NZX 50 Index. South Korea’s Kospi index added 0.3%. The Shanghai Composite Index recouped early losses to edge up 0.5%. Since SGX Nifty fell 18 points. Indian markets likely to open with under pressure.

Hitachi Home & Life Solutions Posted Good Result

The company recently announced its fourth quarter and annual standalone results, the total revenue of hitachi stood up at Rs 1573 crore compared to Rs 1100 crore, up by 43.02 per cent in FY15. 

Power Grid Corporation Of India Posted Margin Expansion In Q4

PGCIL recently announced its fourth quarter and full year financial result for FY2015. PGCIL's total income increased by 17.99 per cent to Rs 4703 crore in Q4FY15 on yearly basis. 

Indices Tanked, Banking stocks Sink

In today’s trading session, the benchmark indices were hammered badly, despite RBI’s Governor cutting repo rate by 25 bps to 7.25 per cent. All the sectoral indices closed below its crucial support levels. The Banking majors like SBI, ICICI Bank, Axis Bank and IndusInd Bank shares fell by more than 4% and BSE Banking index collapse by 740 points. This was followed by Auto and Capital Goods index that fell around 300 points each. While Mid-Caps, Small-Caps, Healthcare, Metals and FMCG too closed in negative territory and there indices were down by around 200 points each. The Nifty closed below its vital support level which is below 200-day EMA level, down by 197 points at 8236 while Sensex was down by 660 point and closed at 27188.

Index Trends And Stocks In Action June 02, 2015

After a strong up-move on Friday, the Indian equity markets failed to continue with the upside momentum and shifted into choppy trade ahead of the central bank’s monetary policy.

Market Likely To Open Flat

Asian stocks opened mostly lower Tuesday ahead of the release of central bank decisions in Australia and India. Nifty is likely to open on a flat note tracking subdued trading of Nifty on the Singapore Stock Exchange. The SGX Nifty was up 1.5 points at 8,423.

Markets Ends On Flat Note, L&T Surges By 3%

The Indian markets witnessed some directionless movement in today’s trade. However the bulls struggle for some breakout, but could not break the major hurdle of around 8500 level.  Capital Good index saw massive amount of buying, as stocks like L&T, BEML, SKF India and Alstom T&D witnessed good amount of buying and capital good index was up by more than 300 points. On the other hand Healthcare, Bankex and Auto closed in the negative territory. The Nifty closed down by 0.25 points at 8433 while Sensex was up by 20 points and closed at 27848 in today’s trade.

Index Trends And Stocks In Action June 01, 2015

The Indian equity markets have kick-started the June series on a high note. The Nifty index surged more than 100 points. Interest rate sensitive stocks like banking and auto led from the front, followed by Pharma, FMCG and Capital goods.

Market Likely To Open Weak

Since SGX Nifty fell 32 points. Indian markets likely to open Weak. RBI policy review on 2nd June and macro-economic data will dictate near term trend on the bourses. Besides, auto stocks would be in focus amid release of monthly sales figures from today.

DSIJ Breakfast News

Start your day with DSIJ Breakfast Roundup, wind up with DSIJ Market Roundup. Register now to get the day’s market outlook, global cues, economic trends, top corporate news delivered straight to your inbox.

mail to

Start your day with DSIJ Breakfast Roundup, wind up with DSIJ Market Roundup. Register now to get the day’s market outlook, global cues, economic trends, top corporate news delivered straight to your inbox.

mail to  *
 *
 *
 *
 *
 *
Content

WE VALUE YOUR FEEDBACK

(* No Research/Stock Queries)
Name :
Email ID :
Cell Number :
Message :
Content