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RBI Issues Guidelines For New Banking Licenses

FEBRUARY 22, 2013

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 RBI Issues Guidelines For New Banking Licenses



RBI Issues Guidelines For New Banking Licenses



The Reserve Bank of India has finalized the guidelines for issuing new bank licences, clearing the way for corporates to enter the banking sector.



The RBI will allow applications for new banking licences until July 1, 2013. The RBI rules do not prohibit companies from any specific sector from getting new licences. The RBI will screen applications and they will be referred to a committee for recommendations. Thereafter, the central bank will issue an in-principle approval to set up the bank.



The RBI is likely to issue 4-5 licences the end of this year. Many NBFCs like Bajaj, Tata, Shriram Transport, Religare, SREI and Reliance Capital have shown interest in banking. Currently, There are 26 public sector banks, 22 private sector banks and over 40 foreign banks in India. The RBI had issued the licences last time in 2001 to two applicants - Kotak Mahindra Bank and Yes Bank.   No new Indian bank has been formed since Yes Bank in 2004.


                                                                                                                                                  KEY FEATURES OF THE POLICY

The entities applying for a banking license should have sound credentials and integrity, must be financially sound with a track record of 10 years. The RBI may seek feedback from different agencies in this regard.


The initial minimum paid-up equity capital for setting up a bank shall be Rs. 500 Crore. The NOFHC shall initially have a minimum 40 % of the paid-up voting equity capital of the bank which shall be locked in for 5 years and which is to be brought down to 15 % within 12 years. The bank shares are to be listed on the exchanges within 3 years of the start of business by the bank.


The total non-resident shares in the new bank shall not exceed 49 % for the first 5 years after which it will be as per the policy in operation.



At least 50% of directors on board should be independent directors. Also, the bank shall open at least 25 % branches in unbanked rural centres (population up to 9,999). The bank shall follow the priority sector lending targets and sub-targets as applicable to existing domestic banks.


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