RBI norms for `on-tap' universal bank licences favour NBFCs

The Reserve Bank of India (RBI) on Friday released draft guidelines for 'on tap' licensing of universal banks in the private sector', that gives existing non-banking financial companies (NBFCs) that are 'controlled by residents' and have a successful track record for at least 10 years a better chance of maturing into a bank.

In a departure from the earlier guidelines on universal banks, issued on 22 February 2013, the present guidelines seek to exclude large corporates from applying for universal bank licence.

''Large industrial and business houses are excluded as eligible entities but are permitted to invest in the banks to the extent of less than 10 per cent,'' RBI said.

RBI, however, is not interested in giving India Incorporated any say in the functioning of these banks, especially in the light of the ballooning non-performing debt pile of corporates.

Non-operative financial holding company (NOFHC) has now been made non-mandatory in case of promoters being individuals or standalone promoters or for converting entities that have no other group entities.

NOFHC are 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, instead of being wholly-owned by the promoter group.

These entities will also be permitted to continue with existing activities in the form of 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.

RBI has sought views and comments on the draft guidelines from banks, non-banking financial institutions, industrial houses, other institutions and the public at large.

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, RBI said.

Eligible promoters include  existing non-banking financial companies (NBFCs) that are 'controlled by residents' and have a successful track record for at least 10 years or individuals or professionals who are 'residents' and have 10 years of experience in banking and finance.

Entities or groups in the private sector with total assets of Rs5,000 crore or more that 'owned and controlled by residents' (as defined in FEMA Regulations) and have a successful track record for at least 10 years are eligible to apply, provided 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.

Fit and proper' criteria
Promoters, including individuals or entities and groups should have a past record of sound financials, credentials, integrity and have a minimum 10 years of successful track record.

Minimum capital requirement
The initial minimum paid-up voting equity capital for a bank shall be Rs500 crore and this would be the minimum net worth needed for banks at all times.

The promoters or the promoter group should hold a minimum of 40 per cent of the paid-up voting equity capital of the bank, which should be locked-in for a period of five years from the date of commencement of business of the bank.

The promoter group shareholding should be brought down to 15 per cent within a period of 12 years from the date of commencement of business of the bank.

Foreign shareholding in the bank would be as per the existing foreign direct investment (FDI) policy subject to the minimum promoter shareholding requirement. At present, the aggregate foreign investment limit is 74 per cent.

The bank should comply with the provisions of Banking Regulations Act, 1949 and the existing guidelines on prudential norms as applicable to scheduled commercial banks. The bank is precluded from having any exposure to its promoters, major shareholders who have shareholding to the extent of 10 per cent or more of paid-up equity shares in the bank, the relatives of the promoters as also the entities in which they have significant influence or control.

The business plan submitted by the applicant should be realistic and viable and address how the bank proposes to achieve financial inclusion.

The bank should get its shares listed on the stock exchanges within six years of the commencement of business by the bank.

The bank should open at least 25 per cent of its branches in unbanked rural centres (population up to 9,999 as per the latest census) and comply with priority sector lending targets and sub-targets as applicable to the existing domestic scheduled commercial banks. The board of the bank should have a majority of independent directors.

The licensing window will be open on-tap, and the applications in the prescribed form along with requisite information could be submitted to the Reserve Bank 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 committee will submit its recommendations to the Reserve Bank for consideration. The decision to issue an in-principle approval for setting up of a bank will be taken by the Reserve Bank.

The validity of the in-principle approval issued by the Reserve Bank will be 18 months from the date of granting in-principle approval and would thereafter lapse automatically.

The Reserve Bank's decision in this regard will be final.