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"The final guidelines show the regulator's practical approach, as it lays down fit and proper conditions for prospective entrants, and shows that the RBI is not pre-judged against anyone, as it has chosen to give everybody a chance," India Ratings' Senior Director and Head of Financial Institutions Ananda Bhowmik told PTI.
"While the guidelines have now allowed a broader set of entities to enter the banking space, there are sufficient checks and balances to ensure that new banks follow prudential norms and gradually move into mainstream banking with minimal systemic risk to the sector," Care Rating said in a note.
Last Friday, the RBI finally issued guidelines for new bank licences, after three years of preparations. The new set of licences comes after over a decade, as previous licences were issued in 2001-02 when two new banks, namely Kotak Mahindra and Yes Bank got licences.
Following this, a host of entities like the Tatas, Birlas, Mahindras, Bajajs, L&T Finance, Anil Ambani Group, besides brokerages and NBFCs like Religare, Srei Finance, Shriram Finance, IILF, Indiabulls, as well as state-run entities like India Post, Power Finance Corp, IFCI and LIC Housing Finance among others, are likely to apply for banking licences.
The RBI has set July 1 as the last date for putting up applications.
When the first wave of bank licenses were handed out in 1993-94, the RBI had allowed 10 players, namely ICICI Bank, HDFC Bank, Axis Bank, IDBI Bank, IndusInd Bank, DCB Bank, Times Bank, Centurion Bank, Bank of Punjab, and Global Trust Bank (GTB) into the sector.
Out of these, Times Bank, Centurion Bank, Bank of Punjab, and Global Trust Bank shut shop after being merged with others.
While Times Bank was merged with HDFC Bank in 2000, GTB was forced to merge with Oriental Bank of Commerce in 2004. Bank of Punjab bought Centurion Bank in June 2005, but in turn, was merged with HDFC Bank in May 2008.
Again, the parent of ICICI Bank was merged with the bank in 2002, while IDBI Bank was created after the state-run infrastructure lender was converted into a bank in 2004.
The new guidelines seek Rs 500 crore as minimum equity capital to set up commercial banks and insist on getting them listed within three years of operations.
Terming the guidelines as "the boundary conditions for seeking applications," Bhoumik said that when licences are finally issued, these norms could change.
However, Bhoumik of India Ratings said that though the rural focus is good, it will be a bit challenging to meet the 25% rural branch guidelines.
Similarly, he said that the minimum equity capital base, which the RBI fixed at Rs 500 crore, is too low and could have been higher. He also said that the 49% cap on foreign holding is a deviation from the present holding structure of most private banks, but it sends out a clear message that the RBI wants to encourage domestic capital.
The RBI has ensured adherence to financial discipline by stipulating the promotion of new banks by a non-operative financial holding company (NOFHC) in the form of a Non-Banking Financial Company (NBFC) which will be regulated by the RBI and would have to comply with present prudential guidelines on standalone and consolidated basis, the Care note said.
The Care note said that one of the key principles of
the guidelines, is to ring-fence financial services businesses of banks and their promoters from the risks of group entities of promoters.
"Provisions for group exposure and ownership structure ensure that new banks will be focused on pure banking and financial activities that are insulated from any group influence. Also, to reduce undue influence of a single promoting individual, a wider shareholding has been encouraged by capping voting equity shares of individual shareholders in the NOFHC at 10%," it said.
The Care note also said that norms look at promoting financial inclusion as it sets a minimum requirement of opening at least 25% of branches in unbanked rural centres and also making it mandatory to meet all priority sector targets.
However, Deloitte's Senior Director Munish Shah said that there aren't any surprises, and the good thing is a level playing field approach that the RBI has taken, by allowing public sector companies, as well as keeping the minimum capital requirement at Rs 500 crore.
"Aspirants will now have to look at getting governance right, by segregating the financial services business under the NOFHC and having the right business plan. I expect at least 10 to 15 serious aspirants to line up for the license," Shah told PTI.
In a note, PwC also lauded prudential measures in the licensing guidelines, saying that the regulator is very firm on a minimum capital adequacy ratio of 13%.
"The final guidelines lay down criteria with respect to promoter eligibility, corporate structure, foreign shareholding, corporate governance, prudential and exposure norms, both on a stand-alone and a consolidated basis," the PwC note said.
