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What are the guidelines of RBI for ‘on tap’ licensing of Private banks?

12-APR-2018 12:31
    Bandhn bank inauguration ceremony

    Reserve Bank of India had issued guidelines to set up two new commercial banks in India on February 22, 2013. The newly opened commercial banks in India are IDFC bank and Bandhan bank. IDFC Bank was established on October 1, 2015 while Bandhan bank was established on December 23, 2014.

    In this article, you will come to know about the guidelines to be followed by the promoters in order to set up new private banks in India.

    Guidelines to be followed by the Promoters of new Private Banks are;

    1. A person / professional who is a native of India and has a 10 year experience in the banking and finance sector as a senior officer; is eligible to apply for new private bank.

    2. Entities / groups in the private sector that are ‘owned and controlled by residents’ must be financially sound and should have a successful track record for at least 10 years. The total assets of such entity / group must be 50 billion or more.

    3. Big industrial houses are not eligible to open a new private bank but are permitted to invest in the banks up to 10%.

    4. The promoter / promoter group / NOFHC must have at least 40% stake in the bank's paid-up voting equity capital, which must be locked in for 5 years from the date of commencement of business of the bank. However; within a period of 15 years from the date of commencement of the business of the bank, the share of promoter / promoter group / NOFHC shall be brought down to 15%.

    5. The initial minimum paid-up voting equity capital for a bank shall be Rs.5 billion. It means, the bank shall have a minimum net worth of Rs.5 billion at all times.

    6. If promoter/entity/group has total assets of Rs. 50 billion or more, the non-financial business of the group does not account for 40% or more in terms of total assets/ gross income; is eligible to apply for new bank.

    7.  The Foreign Direct Investment (FDI) limit in the bank will be decided on the basis of the FDI Policy implemented in the country. The promoter/promoter group of bank will have to keep a certain percentage of shares with itself. At present, the limit of FDI in the banking sector is 75%. However, the central government is mulling to make it 100%.

    8. New bank will have to open at least 25% of their branches in non-bank rural areas.

    9. Domestic scheduled commercial banks shall provide 40% of “Adjusted Net Bank Credit” to the Priority Sector Lending.

    10. The new bank has to list its shares in stock exchanges within 6 years from the date of commencement of the business.

    11. The board of the bank should have a majority of independent directors.

    12. New bank must adhere to the provisions of the Banking Regulation Act, 1949 and the prudential norms already exist.

    13. The business plan submitted by the applicant/promoter should be realistic and feasible and address that how the bank proposes to achieve financial inclusion in the country.

    After reading the above guidelines; it can be concluded that RBI tried hard to ensure that the hard earned money of the people be safe in the banks, financial inclusion can be promoted in the country and concentration of economic power could not place in the country.

    What are the differences between payments banks and commercial banks?

    DISCLAIMER: JPL and its affiliates shall have no liability for any views, thoughts and comments expressed on this article.

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