Mumbai : The Reserve Bank of India  made getting new bank licences more stringent even as it allowed the aspirants to have the holding and capital structure of the bank-holding company in place within 18 months of getting the in-principle nod, instead of 12 months prescribed earlier, reports PTI.

RBI also ruled out any specific number of licences that would be given to applicants and a timeline to do so. It also decided to grant new entities more time to meet priority sector lending norms.

Clarifying the Guidelines for Licensing of New Banks in the Private Sector, the RBI said it had extended the validity period as applicants, who want to set up new banks, brought out several complex issues relating to re-organisation of the existing corporate structure, restructuring of businesses and meeting the regulatory requirements.

The extension of the validity period of the in-principle approval will ensure smooth transition from the existing structures to that prescribed in the guidelines as also for meeting the regulatory requirements.

Under the RBI’s new bank licensing guidelines, entities / groups in the private sector, entities in public sector and non-banking financial companies cannot set up a bank directly. They have to first set up a wholly owned Non-Operating Financial Holding Company (NOFHC), which will hold the bank and other regulated financial services entities/companies in which the Promoter Group has ‘significant influence’ or ‘control’.

Holding structure

On regulatory overlap, the central bank said applicants should approach other financial sector regulators like Sebi and Irda for bringing the entities regulated by them under the holding company. Their decision in this regard would prevail on any vexed issue.

On the holding and capital structure of NOFHC, RBI said it is not necessary that individual along with his related parties have shareholding in the holding company.

However, if any individual belonging to promoter group chooses to become a promoter of the NOFHC, he can hold only up to 49 per cent of the voting equity shares and under 10 per cent of the total voting equity shares of the NOFHC.

The holding company structure envisages holding of the bank and other regulated financial services entities of the Promoters/Promoter Group under it.

It said final norms on the structure of NOHFCs will be issued separately soon and clarified that independent individuals cannot form a group to set up the proposed holding company.

The regulator also said after getting in-principle approval, the licencee has to open the branches within 18 months from the date of in-principle approval.

Replying to a specific query on the lack of level-playing due to the insistence on having 25 per cent presence in rural areas, RBI said all the incremental branches by the existing players are opened in the same proportion.

It further said only non-financial services companies and non-operative financial holding companies in the promoter Group would be allowed to hold shares in the holding company. Coming out with guidelines on new bank licences in February, the RBI had said corporates and public sector entities with sound credentials, Rs 500 crore capital and a minimum track record of 10 years would be allowed to enter the banking business.

Those seeking to set up a bank would have to submit applications by July 1, 2013. The RBI will display names of applicants on its Website.

The norms issued by the RBI after a gap of more than a decade is expected to see companies like M&M, Tatas, Anil Ambani Group, Aditya Birla,  Bajaj Finance and Religare queuing up for a bank licence.

Commenting on RBI’s clarifications, Ernst & Young India partner and national leader banking and financial services Ashvin Parekh said: “Today’s clarifications have rendered a lot of clarity to the whole process and makes even more difficulty for many to finally get the licence.

 “The best part is that it has considerably reduced the element of discretion at the hands of the regulator and thus leaving limited rooms for disputes.”  He added that only three-four players may finally get the licence.

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