RBI issues final guidelines for ‘on tap’ licensing of private banks

Reserve Bank of India (RBI) today issued the final guidelines for `on tap' licensing of universal banks, making resident entities and individuals with total assets of at least Rs5,000 crore and whose non-financial business accounts for less than 40 per cent of overall business eligible for a bank licence.

RBI said large industrial companies will only be allowed to invest up to 10 per cent in banks, and will not be eligible to set up banks, according to final guidelines for banking licences issued today.

Private sector entities or groups that are owned and controlled by residents (as defined in FEMA Regulations) and have a successful track record for at least 10 years, having total assets of Rs5,000 crore or more and whose non-financial business does not account for 40 per cent or more in terms of total assets/in terms of gross income is eligible for `on tap' licensing of universal banks, as per the guidelines issued today.

Resident individuals and professionals having 10 years of experience in banking and finance at a senior level are also eligible to promote universal banks.

Existing non-banking financial companies (NBFCs) that are 'controlled by residents' and have a successful track record for at least 10 years are also eligible for setting up universal banks.

However, the RBI has clarified that any NBFC, which is a part of a group that has total assets of Rs5,000 crore or more and the non-financial business of the group accounts for 40 per cent or more in terms of total assets/in terms of gross income, will not be eligible for a universal bank licence.

Such companies have to set up a non-operative financial holding company (NOFHC) for carrying out banking business.

This, however, has been made non-mandatory in case of individuals or standalone promoters or converting entities that have no other group entities.

Not less than 51 per cent of the total paid-up equity capital of the NOFHC should be owned by the promoter/promoter group, instead being wholly owned by the promoter group while existing specialised activities should be transferred to 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.