Yielding to government's stance, the Reserve Bank today allowed corporates and PSUs with sound credentials and Rs 500 crore capital to set up commercial banks under new guidelines that may also open the doors for the Postal Department and insurance behemoth LIC.
The norms issued by the RBI after a gap of more than a decade will see companies like Mahindra and Mahindra, Tatas, Anil Ambani Group and Religare queuing up for a bank licence.
"Entities/groups should have a past record of sound credentials and integrity, be financially sound with a successful track record of 10 years," it said, adding, RBI would seek feedback about applicants from other regulators, enforcement and investigative agencies like I-T Department, CBI, ED, as deemed appropriate.
The minimum paid-up capital for setting up a bank has been pegged at Rs 500 crore. The cap on the foreign investment, including FDI/FII and NRI, has been set at 49 per cent.
Those seeking to set up a bank would have to submit applications by July 1, 2013. According Financial Services Sector Secretary Rajiv Takru, the first licence will be issued by the end of March 2014.
"There would be examination of applications (by RBI and a high powered committee). I think with all going well, with all clearances, by end of the financial year (2013-14) we will see some success," he said.
The final guidelines which comes within two months of the passage of the Banking Laws Amendment Bill empowering RBI to supersede the board of banks among other things.
Although the Finance Ministry wanted the RBI to issue the norms and start accepting applications pending the passage of the amendment Bill, the RBI decided to stick to its position and waiting for the legislative changes.
The announcement to give new bank licences to corporate entities was made by the then Finance Minister Pranab Mukherjee in February 2010.
As per norms notified by RBI, on receipt of licence promoter has to start operations within one year and list the company within three years of commencement of the business.
Also, new banks should open at least 25 per cent of branches in unbanked rural centres.
Following the grant of licence, the promoter group, which could be a public sector entity as well, will be required to set up a wholly-owned Non-Operative Financial Holding Company (NOFHC).
The NOFHC is aimed at protecting the banking operation from extraneous factors like other business of the Group i.e., commercial, industrial and financial activities not regulated by financial sector regulators.
To ally fears of conflict of interest that may arise if a corporate entity opens up a bank, the notification said: "The RBI will have to be satisfied that the corporate structure does not impede the financial services entities held by the NOFHC from being ring-fenced, that it would be able to supervise the bank, the NOFHC, and its subsidiaries/joint ventures/associates on a consolidated basis...."
Existing non-banking financial company (NBFC) will be eligible to apply for a bank licence.
If considered eligible, NBFCs may be permitted to promote a new bank or convert themselves into banks, it said.
According to norms, the business plan has to be realistic and viable and should address how the bank proposes to achieve financial inclusion.
The new entity will have to comply with the priority sector lending targets and sub-targets as applicable to the existing domestic banks.
At present, there are 26 public sector banks and 22 private sector banks.
10 banks were licensed on the basis of guidelines issued in January 1993. The guidelines were revised in January 2001 based on the experience gained from the functioning of these banks, and fresh applications were invited.
YES Bank was the last to have received a licence in 2004.
The highlights of the RBI's guidelines for licensing of new banks in the private sector:
- Corporates, PSUs and NBFCs can set up a bank
- No bar on entities in sectors like brokerage, realty
- Minimum paid-up equity capital to be Rs 500 crore
- New banks to get listed within 3 years of business
- Foreign shareholding limited to 49% for first 5 years
- RBI to seek feedback on applicants' background from other regulators, Income Tax, CBI and ED
- Licence seeker should have 10 years of successful financial track record, sound credentials and integrity
- To comply with priority sector lending targets; open at least 25 per cent branches in unbanked rural areas
- Boards to have majority of independent directors
- Business plan should be realistic, viable and address financial inclusion
- Applications will be screened by RBI and referred to a high level advisory committee
- To ensure transparency, names of applicants will be placed on RBI's website
- Last date for applying for the licence is July 1
- Over the last two decades, RBI licensed 12 banks in private sector
- New banks were proposed in Budget speech for 2010-11
- RBI floated first discussion paper in August 2010