Moving towards on-tap licensing regime, the Reserve Bank today proposed allowing professionals with 10 years of experience to promote full-fledged banks but large business houses can come in only as investors with less than 10 per cent stake.
The draft guidelines, issued today, may upset the plans of several business houses who had lost out in the last round of distribution of universal bank licences and were eagerly waiting for on-tap regime to set up their own banks.
In a departure from the earlier norms on universal banks, the draft guidelines have made resident individuals and professionals having 10 years of experience in banking and finance as eligible for promoting universal banks.
"Large industrial or business houses are excluded as eligible entities but permitted to invest in the banks to the extent of less than 10 per cent" of paid up equity capital, which RBI has fixed at Rs 500 crore, as per the guidelines.
"The initial minimum paid-up voting equity capital for a new bank shall be Rs 500 crore and thereafter, the bank shall have a minimum net worth of Rs 500 crore at all times," the central bank said.
While assuming charge on September 4, 2013, Governor Raghuram Rajan had said one of his key reform measures would to put bank licensing on-tap. He fulfilled a part of it in April 2014 by issuing in-principal approvals to two-infra lender IDFC and microfinancier Bandhan, out of 25 applicants. Both of them are operational since last year. These banks came in after a gap of over a decade.
Rajan took the second step by announcing in-principle nod to 10 payments banks and 11 small finance banks last year. At the last monetary policy in April, Rajan had said he would look at more differentiated banks like custodian banks and wholesale banks.
RBI said interested parties will have to float a non-operative financial holding company (NOFHC), which has now been made non-mandatory in case of promoters being individuals or standalone promoting/ converting entities who/ which do not have other group entities.
The NOFHC is now required to be owned by the promoter or promoter group to the extent of at least 51 per cent of the total paid-up equity capital of the NOFHC, instead being wholly-owned by the promoter group, which was a necessity in the previous guidelines.
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Existing specialised activities are permitted to be continued from a separate entity proposed to be held under the NOFHC subject to prior approval from the Reserve Bank and subject to it being ensured that similar activities are not conducted through the bank as well.
Existing non-banking financial companies (NBFCs) that are 'controlled by residents' and have a successful track record for at least 10 years will be eligible for the licence.
"Entities or groups in the private sector that are 'owned and controlled by residents' and have a successful track record for at least 10 years, provided that if such entity or group has total assets of Rs 5,000 crore or more, the non-financial business of the group does not account for 40 per cent or more in terms of total assets or in terms of gross income," the guidelines said.
The foreign shareholding will be as per the existing foreign direct investment (FDI) policy, which is currently at 74 per cent.
The RBI has invited suggestions and comments on the draft guidelines by June 30.
"The final guidelines will be issued and the process of inviting applications for setting up of new universal banks in the private sector will be initiated after receiving feedback, comments and suggestions on draft guidelines," the central bank said.
The applications will be referred to a standing external advisory committee to be set up by the Reserve Bank.
The committee will submit its recommendations to the apex bank for consideration and the decision to issue an in-principle approval for setting up of a bank will be taken by the RBI. Those winning applicants will have 18 months to operationalise the new banks.
