Key takeaways from RBI's 'on-tap' licensing norms for banks -:- Equity Research

Almost three years after the Reserve Bank of India (RBI) last issued guidelines for licensing of new banks in 2013, the central bank on Monday released guidelines for 'on tap' licensing of universal banks in the private sector. While beneficiaries back then were two -- IDFC Bank and Bandhan Bank number of new entrants in the banking space could be more this time around.  Here are some key takeaways.   Large Corporates The RBI has excluded large industrial houses as eligible entities from the purview, though they can invest in banks up to 10 percent. Minimum Paid-up Cap The initial minimum paid-up voting equity capital for a bank should be Rs 500 crore and thereafter, the bank should have a minimum net worth of Rs 500 crore at all times.Promoter Holdings The promoter's or the promoter group / non-operative financial holding company (NOFHC) shall hold a minimum of 40 percent of the paid-up voting equity capital of the bank. It will have a lock-in of five years from the day the bank kicked off business. The promoter group's shareholding should be brought down to 15 percent within 15 years of the start of the bank.  ‘Residing’ Promoters Individuals/professionals who are 'residents' in India and have 10 years of experience in banking and finance and existing non-banking financial companies (NBFCs) that are 'controlled by residents' and have a successful track record for at least the same period can apply for the licence. Board Members The board of the bank should have a majority of independent directors. Non-Operative Financial Holding Company (NOFHC) has been made non-mandatory in case promoters are individuals or standalone promoting entities which do not have other group entities. Sound Financials  The applicant would have to pass the 'Fit and Proper' criteria. It basically means that promoter/promoting entity/promoter group should have a past record of sound financials, credentials, integrity and a minimum 10 years of successful track record. Unbanked Rural Centres The applicant should have opened at least 25 percent of its branches in unbanked rural centres. Not just this, the bank's shares should get listed on the stock exchanges within six years of the commencement of business. Priority Sector Lending The bank shall comply with priority sector lending targets and sub-targets as applicable to existing domestic scheduled commercial banks. NOFHC Route Individual promoters, promoting entities and converting entities that have other group entities, can set up the bank only through the NOFHC route. In such cases, the promoter or promoter group need to own a minimum 51 percent in the NOFHC. FDI Eligibility The foreign shareholding in the bank would be as per the existing foreign direct investment rules. At present, the aggregate foreign investment limit is 74 percent.