RBI disallows most corporates from opening banks
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Large corporates have been kept away from promoting new banks but doors have been left open for finance companies that are not part of a conglomerate said a report in the Times of India. The Reserve Bank of India's norms for on-tap banking licences allow corporates to hold up to 10% stake in a new bank.
This major banking sector reform comes a month ahead of RBI governor Raghuram Rajan completing his tenure. The central bank has granted licences to only two banks - IDFC and Bandhan - in the last decade. However, under Rajan, the RBI gave in-principle approval to 11 payments banks and 10 small finance banks. He also promised to replace the 'stop-and-go' bank licensing process with an 'on-tap' licensing system which was announced on Monday. Also awaited are the guidelines for niche wholesale banks and custodian banks announced by Rajan earlier this year.
While non-banking finance companies (NBFCs) as a group are eligible, they will be disqualified if they are part of a corporate group (with Rs 5,000-crore assets) where over 40% of turnover comes from non-financial activities. As against the earlier practice when the central bank opened a 'window' for a limited period of time to accept applications, the new norms allow prospective applicants to submit their proposals any time. If an NBFC is considered eligible for a bank licence, it will have two options - promote a bank or convert the NBFC into a bank.
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If the group has other companies in the finance sector, the promoters will have to set up a non-operating financial holding company that will hold stake in the bank and all other financial sector entities in the group. The RBI will consider allowing retaining existing branches of the NBFC - which is converting into a bank - as bank branches, with prior approval and subject to complying with existing guidelines.
The corporates who had applied for a bank licence earlier include Aditya Birla Nuvo, L&T Finance, Reliance Capital and Tata Sons. While Tata Sons dropped out, Aditya Birla Nuvo has since then bid and obtained approval to set up a payments bank.
The finance companies that had applied include Bajaj Finserv, Edelweiss, IFCI, Indiabulls, India Infoline, JM Financial, LIC Housing, Magma Fincorp, Muthoot, Religare Enterprises, Shriram Capital, SREI Infrastructure, Tourism Finance Corporation and UAE Exchange. Since the central bank had not rejected any applicants, these firms can apply again.
The final guidelines for on-tap licences released by the RBI on Monday require the promoters to hold a minimum of 40% in the paid-up voting equity capital of the bank for at least five years. The promoter holding has to be brought down to 30% within 10 years and to 15% of the paid-up voting equity capital within 15 years.
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