Issuing a fresh set of clarifications on new banking licences, the Reserve Bank on Monday announced that in-principle approval for setting up of new banks will now be valid for 18 months, an increase from earlier proposed one year.
Issuing clarification to queries on new bank licences, the RBI said the companies which would be eligible to apply must have a public shareholding of at least 51 per cent. “..Companies forming part of the Promoter Group whereof companies in which the public hold not less than 51 per cent of the voting equity shares shall hold not less than 51 per cent of the total voting equity shares of the NOFHC (holding company)”, it said.
Besides, the intending applicants would have to approach other regulators to bring in entities regulated by them under the bank holding company, the RBI said. 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 RBI said it had said received 443 queries from 34 individuals/organisations. The norms issued by the RBI after a gap of more than a decade is expected to see companies like Mahindra & Mahindra, Tatas, Anil Ambani Group and Religare queuing up for a bank licence.
The RBI said that most of the queries it received pertained to provisions on eligible promoters, ‘fit and proper’ criteria, foreign shareholding, on transition time to the new structure and corporate structure of the NOFHC among others. It said the queries received from applicants brought out several complex issues pertaining to re-organisation of the existing corporate structure, restructuring of business and meeting the regulatory requirements.
In order to provide more time for a smooth transition from the existing structure to that prescribed in the guidelines, the RBI said it has been decided to extend the validity period of the in-principle approval from one year to 18 months.
“This would provide sufficient time for the promoter group to comply with the various stipulations in the guidelines and the terms and conditions that would be set out while granting the in-principle approvals to successful applicants,” the RBI said. Reserve Bank also said it will look for very high quality applications to issue new bank permits and may not be possible to issue licences to all eligible applicants.
“There is no predetermined number. RBI will be very selective while considering the applications for new bank licences. It will look for very high quality applications,” the RBI said in a notification elaborating its response to the queries raised by various stake holders. “It may, therefore, be not possible to issue licence to all the applicants meeting the eligibility criteria,” it said.
On timeline for granting in-principle approval for bank licence, RBI said: “It will not be possible to indicate the timeline for grant of in-principle approvals at this stage.” The RBI, which had on February 22 issued final guidelines for issuing new banking licences, today came up with clarifications to various queries, as many as 443 from 39 entities, raised by prospective licence seekers.
‘Individuals can’t form group to set up NOHFC, norms soon’
The Reserve Bank also said new bank promoters can hold only up to 49 per cent in the proposed non-operative financial holding company (NOFHC) under any format and that individuals cannot form a group to set up the bank holding company.
It also said that separate guidelines pertaining to the NOHFCs will be issued shortly since they will be governed by a separate set of directions.
“If any individual belonging to the promoter group chooses to become a promoter of the NOFHC, he along with his relatives and along with entities in which he and/or his relatives hold not less than 50 per cent of the voting equity shares can hold voting equity shares not exceeding 10 per cent of the total voting equity shares of the NOFHC.
“Independent individuals forming a group cannot satisfy the above criteria laid down for holding the NOFHC. Additionally, such newly-formed promoter group would not be able to meet one of the ‘fit and proper’ criteria, which requires promoters to have a successful track record of running their business for at least 10 years,” RBI said in its elaborate clarifications issued on Monday.
“Under all circumstances at least 51 per cent of the voting equity shares of the NOFHC shall be held by companies in the promoter group, in which public shareholding is not less than 51 percent,” it further said, adding non-voting capital will not be reckoned for the purpose of calculation of promoter shareholding in the NOFHC/bank.”
Incidentally, out of the 443 questions the RBI had received from 39 entities, as many as 343 were on the structure and capital holding of the proposed NOHFCs.
It further said that at least 51 per cent of the voting equity shares of the NOFHC shall be held by companies in the promoter group, in which the public hold not less than 51 percent of the voting equity of such companies.
“Essentially, the intention is that existing groups should set up banks and not groups set up for this purpose. However, individuals belonging to the promoter group can participate in the voting equity shares of the NOFHC.. But they together cannot hold more than 49 per cent of the voting equity shares of the NOFHC,” RBI said.
Clarifying on the 51 per cent public shareholding in the NOHFC, RBI said ‘public shareholding’ implies that no person along with his relatives and entities in which he and/or his relatives hold not less than 50 per cent of the voting equity shares, by virtue of his shareholding or otherwise, exercises ‘significant influence’ or ‘control’ over the NOHFC, but not necessary that this firm must be listed.
Further it said 51 per cent shareholdings only apply for entities/groups in the private sector that are ‘owned and controlled by residents’. On promoter group firms with less than 51 per cent public holding would get any grace period to increase public holding to over 51 per cent, the RBI said, at the time of making applications, they will have to furnish a road-map to comply with the requirements of the corporate structure indicated.