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The Reserve Bank of India (RBI) on Monday said applicants getting permits to set up new banks would have to do so within 18 months, after which the in-principal approval would lapse. The final norms on new licences had proposed 12 months for this. The central bank, however, declined any relaxation on meeting priority-sector obligations.
“RBI was requested to clarify if it would provide more time for a smooth transition from the existing structures to that prescribed in the guidelines, as also to meet regulatory requirements. It has, therefore, been decided to extend the validity period of the in-principle approval from one year to 18 months,” the central bank said.
In the clarification on draft norms issued on Monday, the banking regulator made it clear that track record of all group companies, including non-financial ones, would be considered while vetting the applications.
The clarification from RBI has, however, not shed any light on banking aspirants that have insurance subsidiaries. Insurance regulation does not allow a subsidiary to own an insurance firm. But RBI’s final norms mandated the non-operative financial holding company (NOFHC), which will hold all financial services company of the group, to be a subsidiary of the promoter group. On this issue, RBI said the applicant might approach the Insurance Regulatory and Development Authority for clarity. The decision of the insurance regulator would prevail.
Another area that requires more clarity is of aspirants with asset management companies (AMCs). The regulation requires that an AMC should be held by a Sebi-registered entity. But RBI’s final licence norms suggested AMCs, too, should be part of NOFHC (which comes under the central bank’s purview). On this, RBI said the matter was being examined in consultation with Sebi.
RBI also ruled that individuals could not form a holding company structure to launch a bank, as the final guidelines clearly specified that an entity must have a successful track record of 10 years. This is a departure from the past practice, when RBI allowed professionals to join hands to float a bank; in the case of YES Bank, for example.
“The clarification is in line with expectations. This is not going to impact us in any way. We have already received board approval for applying for a bank licence and will obtain the approval for the business plan very soon. We will apply within the July 1 deadline,” said Sachindra Nath, CEO, Religare Enterprises.
The banking regulator also clarified that an existing non-banking financial company (NBFC), if it was granted a banking licence, would have to transfer all its lending activities to the new bank. This could pose a challenge for NBFCs, which have large loan books, as they will have to maintain the cash reserve ratio and the statutory liquidity ratio from day one.
“Time (to apply) is definitely not sufficient. But, the point is, people have already been working to create a structure. So, whoever is interested and keen will do it. Since we have not discussed the clarifications internally, at this point I cannot comment on whether we will change our stance or will carry on with the existing stance,” said, G S Sundararajan, group director, Shriram group. RBI is likely to consider aspirants’ requests if they want more time to apply.
The central bank also said an entity could form a non-financial holding company after receiving an in-principle approval. It categorically said NOFHC must be wholly owned by a single promoter group. The CEO, who could be an Overseas Citizenship of India, could not have stake in the NOFHC. The holding company will have at least 40 per cent stake in the bank. RBI also said that an entity could form a non-financial holding company after receiving an in-principle approval.
Since issuing the final norms for new licences at the end of February, RBI has received 443 queries from 34 organisations and individuals — a large number of these on the last date of sending queries.
CLEARING THE AIR
- Non-operative financial holding company (NOFHC) to be the preferred structure
- The overall track record of the promoter group for at least 10 years in both financial and non-financial sectors to be reviewed
- Multi-state cooperative society could promote a bank through NOFHC
- Names of management team, including CEO, to be furnished after grant of in-principle approval
- New banks to be allowed to use the promoter group’s brand name or logo
- Commodity broking not to be part of regulated financial services; promoter entities in this can’t be held under NOHFC
