The Reserve Bank of India (RBI) released draft guidelines for granting on-tap universal banking licences to individuals and entities on May 5. The proposed licensing policy will be a departure from the current policy under which RBI periodically opens window for granting banking licenses. Under Raghuram Rajan’s tenure, RBI has already issued banking licenses to 2 universal banks, 10 small finance banks and 11 payment banks.
According to the draft guidelines, non-banking financial companies (NBFCs), companies not part of large conglomerates and even individuals having 10 years of banking experience will be eligible to apply for universal banking licence. However, RBI has excluded large industrial/business houses from seeking banking license. RBI has also barred entities indirectly linked to large conglomerates from holding more than 10% stake in a bank. This will render corporate-promoted non-banking financial companies (NBFCs) like L&T Finance and Reliance Capital ineligible for applying for the banking license.
Moreover, private sector entities can apply for banking license only if they are owned and controlled by residents and have a successful track record of 10 years. If the total assets of such entities cross Rs 5,000 core mark, then their financial services businesses should contribute at least 60% of the group income of the applicant entities.
The draft regulations require promoters of new banks to hold at least 40% of their paid up capital, which will be locked for 5 years. If the promoter holds more than 40% of the capital, then the stake has to be trimmed down to 40% within 5 years. The promoter’s holding has to further come down to 30% within 10 years and 15% within 12 years.
The new licensees will have to maintain a capital adequacy ratio of 13% for three years after starting their business and list themselves on stock exchanges within six years of commencing business. They will also have to comply with the current priority sector lending targets and sub-targets.