RBI releases guidelines for ‘on tap’ Licensing of Universal Banks

02 Aug 2016 Evaluate

Reserve Bank of India (RBI) has released the much awaited guidelines for ‘on tap’ licensing of Universal Banks in the Private Sector. As per the guidelines for 'on tap', large industrial houses are excluded as eligible entities but are permitted to invest in the banks up to 10 per cent.

The guidelines released by the RBI says that Individuals/professionals who are 'residents' and have 10 years of experience in banking and finance at a senior level and existing non-banking financial companies (NBFCs) that are 'controlled by residents' and have a successful track record for at least 10 years can apply for the on tap licence. Further, entities/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/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/in terms of gross income are also eligible promoters. Besides, the applicant would have to pass the 'Fit and Proper' criteria. According to it, promoter/promoting entity/promoter group should have a past record of sound financials, credentials, integrity and have a minimum 10 years of successful track record.

The requirement of Non-Operative Financial Holding Company (NOFHC) is not mandatory for individual promoters but other group entities shall set up the bank only through an NOFHC. Not less than 51 per cent of the total paid-up equity capital of the NOFHC shall be owned by the Promoter/Promoter Group.

The initial minimum paid-up voting equity capital for a bank shall be Rs 500 crore. Thereafter, the bank shall have a minimum net worth of Rs 500 crore at all times. The NOFHC shall hold a minimum of 40 per cent of the paid-up voting equity capital of the bank which shall be locked-in for a period of five years from the date of commencement of business of the bank. However, the foreign shareholding in the bank would be as per the existing Foreign Direct Investment (FDI) policy. At present, the aggregate foreign investment limit is 74 per cent.

The guidelines said, the licensing window will be open on-tap, and the applications could be submitted to the RBI at any point of time. The applications will be referred to a Standing External Advisory Committee (SEAC) to be set up by the Reserve Bank. The validity of the in-principle approval issued by the RBI will be 18 months from the date of granting in-principle approval and would thereafter lapse automatically. The RBI had last issued guidelines for licensing of new banks in the private sector on February 22, 2013. Consequently, the RBI issued in-principle approval to two applicants, Bandhan Bank and IDFC Bank and they have since established the banks.

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