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RBI TO ALLOW NEW LICENSEES
MORE TIME TO SET UP BANKS


The Reserve Bank of India (RBI) has decided to allow new
banking licensees more time to set up banks. The earlier
guidelines said aspirants will get only one year after getting in-principle licences, failing which the licences will be withdrawn.
The banking regulator will announce a consolidated clarification on new bank licence norms on Monday. Sources
familiar with the developments said the central bank received more than 400 queries from
banking aspirants after the final banking guidelines were announced. Instead of
responding to all of them individually, the central bank has
decided to issue them at one go.
The sources said most of the queries pertained to the non-
operative financial holding company (NOFHC) structure,
which was made mandatory by
RBI. The central bank will allow the aspirants to set up a holding company after giving them in-
principle approval to set up banks. The aspirants need not
have such a structure in place while applying for setting up a bank.
This means the entities, which will get banking licences, will need time to set up such a structure as approvals from
boards and other legal
requirements are involved.
Hence, RBI feels a one-year time limit may not be a practical
option.
RBI had said that the NOFHC shall be wholly owned by the promoter or the promoter group.
The NOFHC will hold the bank as well as all other financial services entities of the group.
At least 50 per cent of the directors of the NOFHC should be
independent directors and the corporate structure should not
impede effective supervision of the bank and the NOFHC on a consolidated basis by RBI, the final norms had said.
However, those who were looking for some relaxation on
other fronts are in for
disappointment. The central bank will make it clear that new banks will not get more time for meeting the cash reserve ratio and statutory liquidity ratio norms. In addition, the new
banks will also have to meet the
priority sector norms from day one.
RBI, sources said, was also open to extend the July 1 deadline for
submitting applications in case it
is specifically sought by any aspirant. Since the applicants have to submit their entire
business plan, duly approved by their respective board, the
central bank feels there is a genuine need to extend the
deadline by a month or two.
The central bank had started the process of issuing fresh licences
– after almost a decade – in 2010 following a
Budget announcement. In the
discussion paper issued in 2010,
RBI had said only a few licences will be given to those who would meet the fit and proper criteria.
This is also the first time when industrial and business houses
will be allowed to enter the banking sector.
Timeline February 2010: Then finance
minister Pranab Mukherjee announces that RBI will issue
fresh bank licences
August 2010: RBI releases discussion paper on new bank
licence
August 2011: The draft norms were released
February 2013: Final norms on new bank licences issued
June 3: Clarifications on final guidelines
July 1: Deadline to submit applications likely to be extended