New RBI norms rule out banking licences for big corporates

New RBI norms rule out banking licences for big corporates

Large corporate houses will not be allowed to start banks, according to the Reserve Bank of India, effectively ruling out the possibility of big business houses to become lenders.

However, they will be permitted to invest in the banks up to 10%, RBI said in its “Guidelines for ‘on-tap’ licensing of universal banks in the private sector” on Monday.

Private sector companies ‘owned and controlled by residents’ that have a successful track record for at least 10 years can apply.

If such group companies have total assets of Rs.50 billion (Rs.5,000 crore) or more, its non-financial business of the group should not account for 40% or more in terms of total assets in terms of gross income. For corporate houses such as Reliance Industries, Tata Group and Aditya Birla Group, more than 40% of their total revenues come from non-financial operations.

Applicants will also be scrutinised based on central bank’s ‘fit and proper’ criteria and must have initial minimum paid-up voting equity capital of Rs.500 crore in the bank.

“Resident individuals and professionals having 10 years of experience in banking and finance at a senior level are also eligible to promote universal banks,” the rules said.

‘On-tap’ bank licencing is a change from the current policy where RBI opens a periodic window for issuing licences. In the last round held in 2014, RBI granted licences to Bandhan and IDFC Bank.

Prior to that in 2004, Kotak Mahindra and Yes Bank were granted permission to enter the banking sector.

Now, the applications can be submitted to the RBI at any point of time.The draft guidelines for this policy were released in May this year — the central bank had invited comments from stakeholders then. Since at least 60% of a group’s income should come from financial services, only few non-banking financial companies will be eligible to get a full banking licence.

Hindustan Times, New Delhi, 02 August 2016