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RBI’s final guidelines exclude large industrial groups from on-tap banking licence

01 August, 2016

The Reserve Bank of India (RBI) on Monday issued new guidelines for issuing ‘on tap’ banking licence, even as it excluded large business groups from the same.

The guidelines, nevertheless pave the way for the government to issue on demand banking licences to non-banking financial companies (NBFCs), certain qualified individuals and some private firms that apply for licences at a time of their choosing. Monday’s guidelines follow draft rules that were issued in May this year.

Although the central bank excluded large entities from getting on tap licences, it did permit them to hold up to a 10% stake in such banks. The much anticipated final guidelines stipulate an initial minimum voting equity of Rs 500 crore and a minimum net worth of an equal amount at all times.

Even as it has kept big business out, the RBI has allowed some private companies to apply for the licences. “Entities/groups in the private sector that are ‘owned and controlled by residents’ (as defined in FEMA Regulations, as amended from time to time) and have a successful track record for at least 10 years, provided that if such entity/group 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,” the RBI has said in its guidelines.

The RBI has waived the requirement of setting up a non-operative financial holding company (NOFHC) for individuals or such entities that do not have any other group entities. However, those having group entities will be required to set up the bank only via an NOHFC, in which “not less than” 51% of the total paid up equity capital of the NOHFC shall be owned by the promoter group.

The RBI has, in the recent past, issued licences to entities to launch small and payment banks and had allowed at least two-Bandhan Financial Services Pvt. Ltd and IDFC Ltd to set up full-fledged banks.

In May 2016, RBI issued draft norms for giving universal bank licences as and when it gets an application that meets all the conditions, as part of efforts to expand the reach of banking services. 

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RBI’s final guidelines exclude large industrial groups from on-tap banking licence

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