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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.

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Overnight Digest – Stocks to look out for on May 30

Overnight Digest – Stocks to look out for on May 30

The stocks which could witness significant movement on May 30 are Jubilant Foodworks Ltd., HDFC, Aurobindo Pharma, Infosys Ltd., Bhel India Ltd.

Other Income lifts BHEL’s Q4 Net Profits; posts yearly Loss

Other Income lifts BHEL’s Q4 Net Profits; posts yearly Loss

Government of India promoted Power Company Bharat Heavy Electricals (BHEL) has posted exceptional income from operations and a recovery from losses it made in the previous quarter. The stock of BHEL remained subdued about the results and closed at Rs 127.70 with 0.7 per cent loss ahead of the results. The board also recommended a final dividend of Rs 0.4 per share on the face value of Rs 2.00 per share.

Maruti Suzuki continues with its recalling spree

Maruti Suzuki continues with its recalling spree

The recalling session of the country’s largest car – maker does not seem to be over yet. On Friday the company has again recalled its popular brand Baleno and Swift D-zire.

3M India posts 40% growth in Q4

3M India posts 40% growth in Q4

3M India, a maker of adhesives, car polishes and the ubiquitous Stick-Ons, has reported 40.3 per cent growth in net profit to Rs 58.41 crore in Q4FY16 as against Rs 41.63 crore in Q4FY15 owing to strong operating profit.

Indices end on day’s high; SBI surges

Indices end on day’s high; SBI surges

In continuation of the scenario seen over the last few days, the Indian markets closed trades on a positive note. At the closing session, the indices saw an excellent up-move; as the stock of SBI moved northward, up by 6.9 per cent to touch Rs 200 mark. The Nifty ended higher by 87 points at 8156 and Sensex was up by 286 points at 26653. Both indices ended higher in the range of 1.08-1.10 per cent each.

SBI Q4 net drops YoY amid higher provisions

SBI Q4 net drops YoY amid higher provisions

India’s second largest lender, State bank of India has posted its Q4FY16 results. The stock has surged for the third consecutive day despite of not so good results from the bank. The bank also declared a dividend of 2.60 Rs per share for the financial year ended March 31, 2016.

Let’s see how giants have done so far

Let’s see how giants have done so far

Time to relook at our portfolio as many laggards of yesterday are gaining pace at present, as market cheers and has posted stellar gains in two years’ regime of Modi Government backed by large cap performance.

Sagar Cements plunges over 12 per cent on disappointing Q4 results

Sagar Cements plunges over 12 per cent on disappointing Q4 results

Sagar Cements, a mid-sized Andhra Pradesh-based cement company, has plunged over 12 per cent on the BSE in early morning trade after posting a standalone net profit that has de-grown by 29.89 per cent at Rs 15.21 crore for the quarter ended March 31, 2016 as against Rs 21.70 crore in the corresponding quarter of the previous year.

ONGC's Q4 net profit increases by 12 per cent

ONGC's Q4 net profit increases by 12 per cent

India’s largest oil and gas exploration company by sales, has posted robust numbers this quarter, but has failed to deliver on a (YoY) basis. The company on May 26 has declared its Q4FY16 results, wherein for the March quarter the company has reported a net profit of Rs 4416 crores. Net profits have increased by 12 per cent as compared to Q4FY15. EBITDA for the period stands at Rs 3489.58 crores. Total income from operations stands at 4489.16 crores for the quarter as against Rs 7619.38 crore for the corresponding period of the previous fiscal.

Mid Market commentary May 27

Mid Market commentary May 27

It is yet another dynamic impulse for the markets where both Nifty and SENSEX are up at 8130 and 26520 levels. Broader markets maintain outperformance where Midcap stocks have seen tremendous optimism. Market bias too remains positive with 1386 advances and 827 declines.

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Sachith Sudarshan May 28 09:08AM
Good day to buy Aditya Birla Nuvo shares for Long Term Gains, what do you say?
Saqib Mehmood May 28 12:19AM
guys i dnt understand i have made a profit of around 23000 but my portfolio value is still 1009419 despite no loss in current holdings too please reply
Samraj Prataprao May 27 11:40PM
IF YOU HAVE ANY QUERIES POST HERE& ILL EXPLAIN SIMILARLY KPR MILL CAN EASILY DOUBLE FROM 900 RS, AS WELL AS TRIDENT, JAIN IRRIGATION EASY DOUBLER AS EXPLAINED. THE FRESH FARM VALU = PARENT CO JAIN IR
Samraj Prataprao May 27 11:38PM
promoters of mandhana ind have bought 31 lakhs shares since 2012 july. it means its first purchase is at 425 rs. this is sheer value here. once being human gets listed it will open up value
Samraj Prataprao May 27 11:36PM
today investors bought it why because they realized sales reportd is ex being human & it will list at 7-900 rs value compared to kewal kiran being human has grown from 40 crs in '11 to 254 crs today