Thursday, September 15, 2011

RBI-DRAFT BANK LICENSING NORMS ANNOUNCED

The Reserve Bank of India (RBI) has paved the way for corporate India to enter banking, but has set stiff conditions that straightaway shut the door on real estate companies and brokerage firms. In its much-awaited draft guidelines for new private banks, Reserve Bank of India (RBI) said that private groups or entities with diversified ownership, sound credentials and a "successful track record" of 10
years would be allowed to apply for new banking licenses. The Central Bank is considering issuing banking licenses for the first time since 2004. Such groups or entities cannot have more than 10 per cent or more assets or income from real estate and capital market activities.

Companies welcome, but with caveats

  • Promoters with diversified ownership, track record of 10 years.
  • Clearance needed from regulatory, investigative agencies.
  • Minimum paid-up capital of Rs 500 crore.
Financial inclusion
  • 25 per cent of branches in unbanked areas.
Checks and balances

  • Exposure to single promoter group entity under 10 per cent
  • Exposure to all promoter group entities under 20 per cent
Holding company
  • Non-operative holding company to be set up, registered with the RBI
  • Holding company to hold 40 per cent for 5 years, excess of 40 per cent to be brought down in 2 years
  • Holding to be brought down to 20 per cent in 10 years, 15 per cent in 12 years
The ones left out
  • More than 10 per cent of income or assets from broking and real estate
Differential treatment
  • Foreign shareholding cap 49 per cent for 5 years versus 74 per cent now.
  • IPO in 2 years versus no such mandate currently.
  • Minimum capital adequacy at 12 per cent for at least 3 years versus 9 per cent now.

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