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Raghuram Rajan released the consolidated norms of On-Tap Licensing process to enact reform in the Banking Industry

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In order to switch over bank licensing process from once-in-a-decade affair into an ongoing process, RBI governor Raghuram Rajan has released the key features regarding the consolidated norms of the ‘on tap licensing’ or continuous licensing process.

What is On Tap Licensing?

  • On-tap licensing means that the window for getting a bank license from RBI is open throughout the year.
  • Earlier, RBI used to invite applications for giving bank licenses, and prospective players submitted their applications within a fixed time-frame as prescribed by RBI. This arrangement was not open all the time.RBI stretched out SAARC Swap Arrangement
  • Now, virtually anyone, who fulfills the criteria, can apply for a bank license anytime.
  • The Reserve Bank of India released guidelines for granting ‘on-tap’ bank licenses to individuals, groups, companies or entities.
  • While the guidelines give an opportunity to the large Non-Banking Financial Companies and professionals with a minimum of 10 years experience, it bars those entities for whom over 40% of business comes from non-financial activities.
  • The RBI has invited suggestions on the guidelines till 30th June.
  • This decision of RBI to grant on-tap license reflects maturity and would help in furthering financial inclusion by enhancing banking penetration in unbanked areas.
  • It is noted thatin banking sector, the aggregate foreign investment limit is 74 per cent.

Guidelines of this On-Tap License:-

  1. On-tap licensing has initiated the biggest overhaul in India’s banking structure, after readying the structure for differentiated banking regime with the issuance of small finance banks and payments bank licences.
  2. If one sees the monetary policy structure reforms too along with this, Rajan’s governorship has witnessed an era of big reforms in India’s banking industry.

As a key point to notice, Individuals who are ‘residents’ and have 10 years of experience in banking and finance at a senior level and existing non-banking financial companies (NBFCs) that are ‘controlled by residents’.

  • The applicant have to pass the ‘Fit and Proper‘ criteria, which constitutes of a promoting entity/ group should have a past record of proper and efficient financial credentials, integrity and should have a minimum 10 years of successful track record.
  • It is also to be complying by the applicants that the respective entity has total assets of Rs 5,000 crore or more, the non-financial business of the group does not account for 40 per cent or more in terms of total assets/in terms of gross income.