RBI releases draft norms for universal bank licences on tap

Initiator:  The Reserve Bank of India

Released Guidelines:

Tap licensing of universal banks in the private sector.

• Allowing individuals with 10 years of experience in banking and finance to apply for a licence successful track record for at least 10 years are eligible to apply for a licence.
• The initial minimum paid-up voting equity capital required is Rs.500 crore, and thereafter the bank should maintain a minimum net worth of Rs.500 crore at all times.
• Applications will be screened by the RBI to assess the eligibility of applicants with regard to the criteria laid down in the guidelines.
• RBI may apply additional criteria to determine the suitability of applications, in addition to the ‘fit and proper’ criteria.

Central Bank Announcements:

• Entities in the private sector that are owned and controlled by residents.
• To have a successful track record for at least 10 years, provided that if such entity has total assets of Rs 5,000 crore or more.

The non-financial business of the group does not account for 40% or more in terms of total assets in terms of gross income.

Reserve  Bank of India Announcemets:

Minimum capital requirement:

1. The promoters and the promoter group shall hold a minimum of 40% of the paid-up voting equity capital of the bank which shall be locked in for a period of five years from the date of commencement of business of the bank.
2. The promoter group’s shareholding shall be brought down to 15% within a period of 12 years from the date of commencement of business of the bank.

Standing External Advisory Committee (SEAC) :

1. The applications will be referred to a Standing External Advisory Committee (SEAC) to be set up by the RBI.
2. The SEAC will comprise eminent persons with experience in banking, financial sector and other relevant areas and will have a tenure of three years.
3. The SEAC will set up its own procedures for screening applications and will meet as and when required.
4. The committee will reserve the right to call for more information as well as have discussions with any applicants and seek clarification on any issue as may be required by it.
5. The committee will then submit its recommendations to the central bank for consideration
6. The validity of the in-principle approval issued by RBI will be 18 months from the date of granting in-principle approval and would thereafter lapse automatically.

New Initiatives of this Process:

Eligible promoters:

1. Existing NBFCs that are ‘controlled by residents’ and have a successful track record for at least 10 years.
2. Individuals or professionals who are ‘residents’ and have 10 years of experience in banking and finance.
3. Entities in the private sector that are ‘owned and controlled by residents’.

Foreign shareholding in the bank:

The foreign shareholding in the bank would be as per the existing foreign direct investment (FDI) policy subject to the minimum promoter shareholding requirement.

Listing requirement:

• The bank shall get its shares listed on the stock exchanges within six years of the commencement of business by the bank.
• The bank shall open at least 25% of its branches in unbanked rural centres.