RBI released draft guidelines for licensing of Universal Banks in Private Sector

May 9, 2016 17:12 IST

RBIThe Reserve Bank of India (RBI) on 5 May 2016 released Draft Guidelines for on tap Licensing of Universal Banks in the Private Sector

It also sought views and comments on the draft guidelines from banks, non-banking financial institutions, industrial houses, other institutions and the public at large latest by 30 June 2016.

RBI will issue the final guidelines will after receiving feedback, comments and suggestions on draft guidelines.

Salient features of the draft guidelines:

Eligible Promoters:

i. Existing non-banking financial companies (NBFCs) that are controlled by residents and have a successful track record for at least 10 years.

ii. The residents, individuals or professionals who have 10 years of banking and finance experience.

iii. Residents owned entities or groups in the private sector which have a successful track record for at least 10 years.

Fit and Proper criteria:  Promoter or promoting entity or promoter group should have a past record of sound financials, credentials, integrity and have a minimum 10 years of successful track record.

Corporate structure:

i. The requirement of Non-Operative Financial Holding Company (NOFHC) is not mandatory for individual promoters or standalone promoting or converting entities that do not have other group entities.

ii. Individual promoters or promoting entities or converting entities that have other group entities, shall set up the bank only through an NOFHC.

iii. The NOFHC shall be owned by the promoter/promoter group to the extent of not less than 51 per cent of the total paid-up equity capital of the NOFHC.

Minimum capital requirement: The initial minimum paid-up voting equity capital for a bank shall be 5 billion rupees. Thereafter, the bank shall have a minimum net worth of 5 billion rupees at all times.

Foreign shareholding in the bank:  The foreign shareholding in the bank would be as per the existing foreign direct investment (FDI) policy. The aggregate foreign investment limit is 74 per cent.

Corporate governance prudential and exposure norms: 

i. The bank shall comply with the provisions of Banking Regulations Act, 1949 and the existing guidelines on prudential norms as applicable to scheduled commercial banks.

ii. 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.

Business plan for the bank:  A realistic and viable business plan should be submitted that can propose the bank’s ability to achieve financial inclusion.

Other conditions:  The bank shall get its shares listed on the stock exchanges within six years of the commencement of business by the bank.


• Reserve Bank of India (RBI) issued guidelines for licensing of new banks in the private sector earlier on 22 February 2013.

• Consequently, the Reserve Bank issued in-principle approval to two applicants and they have since established the banks.

• On recommendations of the Narasimham Committee, Raghuram G. Rajan Committee and other viewpoints to have an explicit policy on banking structure in India, the RBI came out with a policy discussion paper on Banking Structure in India The Way Forward on 27 August 2013.

• After a thorough examination of the pros and cons, the discussion paper made out a case for reviewing the current Stop and Go licensing policy and for considering a continuous authorisation policy on the grounds that such a policy would increase the level of competition and bring new ideas into the system.

• The feedback on the discussion paper broadly endorsed the proposal of continuous authorisation with adequate safeguards.

• The first Bi-monthly Monetary Policy Statement 2014-15 announced on 1 April 2014.

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