Markets
BSE See
NSE See
27,531.93
72.70 (0.26%)

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

collapse Related Readings collapse
Information Requested is Not Found

DSIJ
Mindshare

Index Trends And Stocks In Action July 29, 2015

Index Trends And Stocks In Action July 29, 2015

It was a choppy session on the Indian benchmark index as indices oscillated between green and red for the major part of the day, however, in last hour bulls gave up and the market ended in red.

Market Likely To Open Flat

Market Likely To Open Flat

A SGX CNX Nifty Index future for July delivery was down 9 points at 8,335. Indian markets likely to open flat. The market is likely to stay volatile this week ahead of F&O expiry on Thursday. Key earnings today: Castrol India, Godrej Consumer, UPL, Yes Bank

Indices Ends On Lower Note, Nifty Below 8350 Mark

Indices Ends On Lower Note, Nifty Below 8350 Mark

The Indian benchmark has faced profit booking in the last 3 consecutive sessions. Most of the sectoral indices are seeing deep dives and has been closing below its respective supports. After the mid-session Healthcare, Consumer Durables, Mid-caps and Small-Caps index were turn into negative territory and also hammered badly. As a result the Nifty ended on lower note by 24 points at 8337 and Sensex was 102 points down at 27459.

Torrent Pharmaceuticals accelerates top line by 78.78 per cent

Torrent Pharmaceuticals accelerates top line by 78.78 per cent

TPL's shareholding pattern indicates that FII holdings expanded by 11 basis points to 12.37 per cent and DII holdings contracted by 4 basis points to 6.72 per cent in Q1FY16 during June 2015 quarter. The stock price of the company increased by 8.8 per cent to 52 week high at Rs 1520 and trading at Rs 1425.2 on intraday. TPL completed its acquisition of 100 per cent equity stake of Zyg Pharma on July 17, 2015.

Index Remains Range-Bound, PNB Shine

Index Remains Range-Bound, PNB Shine

The Indian markets witnessed trading in a tight range during the mid-market session. The same scenario was seen in the currency segment, wherein the INR was seen trading at around 64.10 against US dollar. The Nifty is trading up by 2 points at 8363 and the Sensex is down by 3 points at 27557. The indices are trading on a mixed note between -0.01 and 0.03 percent.

KEC International reports more than two fold increase in Net Profit

KEC International reports more than two fold increase in Net Profit

KEC International (KEC) announced its consolidated unaudited results for the June quarter on 27th July. The company reported a strong growth of 167.75 per cent annual basis in Profit after Tax (PAT), which stood at Rs 30.39 crore in Q1FY16 against Rs 11.35 crore in Q1FY15. In response to the strong results the shares of KEC gained more than 7 per cent and touched a one year high of Rs 160.95 in the BSE on Tuesday (28th July).

Tech Mahindra's Net Profit up by 43 per cent in Q1

Tech Mahindra's Net Profit up by 43 per cent in Q1

Tech Mahindra recently declared its Q1FY16 results, the INR revenue from operations rose by 2.89 per cent to Rs 6293.82 crore as against Rs 6116.79 crore Q-o-Q. The USD revenue stood at USD 98.9 crore up by 0.5 per cent on quarterly basis.

Rajesh Exports buys Valcambi : Will it benefit the stock

Rajesh Exports buys Valcambi : Will it benefit the stock

Rajesh Exports has acquired Swiss based precious metals refiner Valcambi SA for $400 million. The deal is an all cash deal as per the company statement given to BSE on Monday.

Valcambi is a dividend paying company with consistent track record for good performance and has considerable cash surplus.

Index Trends And Stocks In Action July 28, 2015

Index Trends And Stocks In Action July 28, 2015

It was a bloodbath on the D-street as the Indian Indices ended with losses for the third straight session. The Sensex broke its crucial psychological level of 28000.

Market May Remain Weak

Market May Remain Weak

A SGX CNX Nifty Index future for July delivery was down 5 points at 8,350. Indian markets may remain weak on account of globally negative sentiment. The market is likely to stay volatile this week ahead of F&O expiry on Thursday. Blue Star, GSFC, ABCIL, RPG Life, HDFC, Union Bank, Syndicate Bank, PNB, Dish TV, Maruti, Pidilite, Andra sugar, IDBI and PI Industries would be reporting first quarter earnings today.

Subscribe to
Newsletter

news letter

More for the early bird.

Get the pre-market reports and breakfast news right in your inbox. See latest »

Market
CHIT CHAT

What is your view on markets today?

500  Characters Remaining.
Please LOGIN  to post your comments or Click here to go back.
prabin agarwal Jul 29 09:53AM
Hy divya..buy uco bank
saket Patel Jul 29 09:16AM
:)
Satyendra Pandey Jul 29 09:10AM
Strongly opened... already so many greens.
Inderjit chahal Jul 28 11:22PM
market is close otherwise order is executed in 5-7 minutes
Inderjit chahal Jul 28 11:22PM
market is close otherwise or der is executed in 5-7 minutes