Corporates with sound credentials can enter banking business, says RBI, issues guidelines

Feb 22 2013, 23:45 IST
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Anil Ambani Group, L&T, Tatas, M&M and Aditya Birla Group can now enter banking business. (Thinkstock) Anil Ambani Group, L&T, Tatas, M&M and Aditya Birla Group can now enter banking business. (Thinkstock)
SummaryAnil Ambani Group, L&T, Tatas, M&M and Aditya Birla Group can now enter banking business.

The Reserve Bank of India (RBI) today issued the much-awaited guidelines for new bank licences, allowing corporates and public sector entities with sound credentials and a minimum track record of 10 years to enter the banking business.

The Reserve Bank, which has laid down an elaborate 'fit and proper' criteria, has not excluded any category like brokerages, real estate companies from entering into the banking space as has been advocated by the Finance Ministry.

The final guidelines pave the way for corporate houses like Anil Dhirubhai Ambani Group, Larsen & Toubro, Tatas, Mahindra and Mahindra, Life Insurance Corporation and Aditya Birla Group to enter the banking business.

"Entities/groups should have a past record of sound credentials and integrity, be financially sound with a successful track record of 10 years," it said.

The minimum paid-up capital for setting up a bank has been pegged at Rs 500 crore.The cap on the foreign investment, including FDI/FII and NRI, has been set at 49 per cent.

As per norms notified by RBI, on receipt of licence, promoter has to start operations within one year and list the company within three years of commencement of the business.

Also, new banks should open at least 25 per cent of branches in unbanked rural centres.

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.

Before granting licences, RBI would seek feedback about applicants from other regulators, enforcement, investigative agencies like I-T Department, CBI, ED, as deemed appropriate.

The rules issued today is the culmination of three-year process. RBI will now begins taking applications for bank licenses for the first time in a decade.

At present, there are 26 public sector banks and 22 private sector banks. Only 35 per cent of India's adult population has accounts with banks and other financial institutions as compared to a global average of 50 per cent.

It is 41 per cent in case of developing economies.

Following the grant of licence, the promoter group, which could be a public sector entity as well, will be required to set up a wholly-owned Non-Operative Financial Holding Company (NOFHC).

The NOFHC is aimed at protecting the banking operation from extraneous factors like other business of the Group i.e., commercial, industrial and financial activities not regulated by financial sector regulators.

To ally fears of conflict of interest that may arise if a corporate entity opens up a bank, the

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