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RBI gives more time to set up banks

The central bank has extended the validity period of the in-principle approval for setting up a bank from one year to 18 months.

twitter-logo Anand Adhikari        Last Updated: June 3, 2013  | 21:17 IST

Anand Adhikari
The Reserve Bank of India (RBI) has extended the validity period of the in-principle approval for setting up a bank from one year to 18 months.

In its final guidelines issued in February this year, RBI had mooted a holding company structure - a non operating financial holding company (NOFHC) - to house all the financial services businesses of a group, including  banking, insurance, mutual fund and private equity businesses.

This extension would give enough time to banking aspirants, such as the Mahindra Group, the Aditya Birla Group, the Tata Group and Anil Ambani-controlled Reliance Group, to restructure and reorganise their financial services business under one roof.

Today, these businesses are either run under a non banking finance company (NBFC) or housed independently or under some other entity of the group.

RBI's idea of a compulsory NOFHC is to safeguard the interests of deposit holders from any possible fund diversion to corporate houses or their dealers and suppliers. Under the guidelines, the new banks are prohibited from investing in any financial subsidiaries within the NOFHC.

The other criterion for setting up a bank includes a 10 year track record of the promoter group (to assess its credentials and integrity), minimum equity capital of Rs 500 crore, locking the promoter holding at a minimum of 40 per cent for five years  and mandatory listing within three years of commencement of business.

A little over three years ago the then finance minister Pranab Mukherjee had first announced that the RBI would issue fresh bank licences. The central bank, which began the process four months ago, has received 443 queries from 34 individuals as well as companies.

Most of the queries related to the NOFHC, transition time for complying with the new structure, foreign shareholding and guidelines on eligible promoters.

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