RBI extends time to set up new banks by six months

* Deadline for submission of application remains July 1

Written by ENS Economic Bureau | Mumbai | Published: June 4, 2013 1:31:40 am

The Reserve Bank of India (RBI) has extended the validity of in-principle approval for new banks to 18 months from one year,thereby enabling the promoters to get more time to operationalise the banking business. However,the RBI refused to indicate any timeline for grant of in-principle approvals and declined to change the deadline for submission of the application.

The Indian Express had,on May 28,reported that the grant of the banking licences could be pushed to the middle of 2014 from the February-March period it was expecting.

“The applications for licences will be received up to July 1,2013. Thereafter,a detailed due diligence process has to be undertaken,and after completion of all processes of the guidelines,in-principle approvals will be granted. It will not be possible to indicate the timeline for grant of in-principle approvals at this stage,” the RBI said.

After the in-principle approval is accorded by the RBI for setting up of a bank,the promoter group has to set up a non-operative financial holding company (NOFHC) and the bank within 18 months from the date of in-principle approval. The bank has to commence banking business within this period after obtaining the banking licence,it said.

The RBI also said there is no predetermined number of new licences. “The RBI will be very selective while considering the applications for new bank licences. It will look for very high quality applications. It may,therefore,not be possible to issue licence to all applicants meeting the eligibility criteria,” it said.

The actual setting up of NOFHC and the bank,re-organisation of the promoter group entities to bring the regulated financial services entities under the NOFHC as well as realignment of business among the entities under the NOFHC have to be completed within a period of 18 months from the date of in-principle approval or before commencement of banking business,whichever is earlier.

The RBI further said at least 51 per cent of the voting equity shares of the NOFHC should be held by companies in the promoter group,in which public shareholding is not be less than 51 per cent. NOFHC will have to be wholly owned by the promoter group.

“The promoter group cannot set up a bank directly. They have to first set up a wholly owned NOFHC,which will hold the bank and other regulated financial services entities/companies in which the promoter group has ‘significant influence’ or ‘control’,” it said.

On the proposed policy discussion paper on the banking structure,the RBI said,“It will be applicable both to existing and new banks. The present policy guidelines for licensing of new banks in the private sector will not undergo any change due to the policy discussion paper on banking structure in India.”

The new bank should have a minimum voting equity capital of Rs 500 crore. “However,where an NBFC is permitted to convert into a bank,it should have a minimum networth of Rs 500 crore at all times,the RBI said. All regulated financial services entities of the promoter group in which the promoter group has ‘significant influence’ or ‘control’ will have to be held by the NOFHC.

When regulatory norms prescribed by other regulators overlap with the RBI norms,the RBI said,“While the structure prescribed in the guidelines is the preferred structure,the intending applicants should approach the other financial sector regulators for bringing the entities regulated by them under the NOFHC.”

MORE CLARITY ON BANK LICENCES

* Applications for licences will be received up to July 1,2013

* Promoter has to set up the non-operative financial holding company and the bank within 18 months from the date of in-principle approval

* There is no predetermined number of new licences but it will look for very high quality applications

* 51% of the equity of NOFHC should be held by companies in the promoter group

* Public holding promoter should be at least 51%

* NOFHC should be wholly owned by promoter group

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