RBI issues draft norms for on-tap licensing for universal banks

The Reserve Bank of India (RBI) has issued draft norms for on-tap licensing for universal banks. On tap licensing which means there will not be any cut-off date for applying for the licences, has set stiff conditions for industrial houses that aspire to become banks and top industrial groups, which once harboured ambitions of starting a universal bank in the country, will no longer be eligible to apply for a universal bank licence. Earlier, RBI was opening up the licence process periodically.

Though, the broad contours of the draft norms are in line with guidelines issued for bank licensing in 2013, the central bank has now made it clear that business houses predominantly in financing activities, for example, non-banking financial companies (NBFCs) would be preferred. Existing NBFCs that are “controlled by residents” and have a successful track record for at least 10 years are among those that can apply for on-tap licences. In addition, individuals and professionals, who are residents and have 10 years of banking experience, can also now apply for a licence.

As per the RBI notification, in a departure from the earlier guidelines on universal banks dated February 22, 2013, the present "Draft Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector" include (i) resident individuals and professionals having 10 years of experience in banking and finance as eligible persons to promote universal banks; (ii) large industrial/business houses are excluded as eligible entities but permitted to invest in the banks to the extent of less than 10 per cent; (iii) Non-Operative Financial Holding Company (NOFHC) 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; (iv) The NOFHC is now required to be owned by the promoter/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; and (v) Existing specialised activities have been 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.