Wednesday, 27 January 2016

New Rules for Opening Banks

The Reserve Bank of India announced the much-awaited new eligibility criteria for opening new banks in India by the private entities, in September 2011 and finalised in February 2013, after considering advices and suggestions form the business and industry.
The issue of giving licences to a few private parties to start commercial banks has always been a sensitive one. More so, at this juncture, when it is believed that the new policy relaxation is primarily for the benefit of large industrial houses and business groups. Before 1969, many leading banks, including Bank of India, Bank of Baroda and United Commercial Bank, were owned or controlled by leading business groups. In a two-stage process that began had as much to do with domestic politics as economics. The case for the takeover was built on the ground that these banks were serving their private promoters interests and that in any case there was a need to reorient the banking system towards national interests. The bias against large industrial houses has continued in the reform era. Following the guidelines of 1993 and 2001, some private banks came into being but none of them was sponsored by large business houses. However, this time it is likely that a few industrial houses will make the grade. The rules are as given below :-

  • Eligible promoters :- Entities in the private sectors, owned and controlled by residents, with diversified ownership, sound credentials and integrity and having successful track record of at least ten years will be eligible to promote banks. In a significant move, the RBI has barred groups having even an exposure of 10% in real estate and or broking activities over the past three years.
  • Corporate structure :- New banks will be set only through a wholly-owned non-operative holding company, which will be registered with the RBI as a non-banking finance company.
  • Capital requirement :- It will be Rs.500 crore. The NOHC will hold a minimum 40% of the capital for five years from the date of licensing and aggregate non-resident shareholding will not exceed 49% for the first 5 years.
  • Corporate governance :- 50% of the directors of the NOHC should be independent directors.
  • Business Model :- Should be realistic and viable and should address how the bank proposes to achieve financial inclusion.
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