RBI unveils draft norms on allowing corporates to set up banks

Mumbai, Aug 29 (PTI) After discussing it for over an
year, the Reserve Bank on Monday came out with draft
guidelines for allowing business houses with successful track
record and a minimum capital of Rs 500 crore to set up
commercial banks.
The draft, on which the RBI has invited comments from
stakeholders till October 30, also spelt out the framework
for converting non-banking financial companies into banks.
As per the draft guidelines, the minimum capital
requirement for a company to set up a bank has been pegged at
Rs 500 crore, up from existing Rs 300 crore.
Although the move to allow corporates to set up banks is
welcomed by India Inc, RBI Governor D Subbarao had expressed
concerns by saying the entry of business houses into the
banking space could open up opportunities for "self-dealing".
"...if a corporate has an interest in a bank as a
promoter or a shareholder, but has no position on the board,
then there is no prohibition on the bank lending to the
corporate. This opens up opportunities for self-dealing," he
had said earlier this month.
The draft, which follows a discussion paper on the issue
by the central bank in last August, does not specify the
number of licences to be issued as part of the new policy.
RBI had in 2001 issued two banking licences. In 1993, it
had allowed 10 entities to float commercial banks.
Several business houses, including ADAG, Aditya Birla
Group and Larsen & Tourbo, have evinced interest in setting up
banks. State-run LIC too is keen to enter the space.
Finance Minister Pranab Mukherjee in his Budget speech
last year had said RBI would grant banking licences to private
sector players and NBFCs. According to the draft guidelines, companies which are
primarily engaged in the real estate or stock broking will not
be eligible for promoting bank.
"Entities or groups having significant (10 per cent or
more) income or assets or both from real estate, construction
and broking activities individually or taken together in the
last three years will not be eligible to set up new banks,"
the draft said.
On foreign holding, it said the aggregate non-resident
shareholding in the new bank should not exceed 49 per cent for
the first five years.
At present, the foreign shareholding in private sector
banks is allowed up to 74 per cent of the paid-up capital.
Commenting on the draft norms, Mahindra and Mahindra
President (Legal and Financial Services) Uday Phadke said,
"The draft RBI guidelines are positive and in the right
direction. Our group will be keen to explore a banking
licence. Our long experience of two decades provides us with
the necessary understanding and strength in the financial
services domain."
On the corporate structure, it said the new banks will
be set up only through a wholly-owned non-operative holding
company (NOHC) to be registered with the RBI as an NBFC which
will hold the bank as well as all the other financial
companies in the promoter group.
The objective is that the holding company should ring
fence the regulated financial services activities of the
group, including the new bank, from other activities of the
group that is, commercial, industrial and financial activities
not regulated by financial sector regulators, the draft said.
PTI DP