India Inc cannot set up universal banks, RBI rules say

Top industrial groups of India, such as Tata group, Aditya Birla group and Mahindra & Mahindra, which once harboured ambitions of starting a universal bank in the country, will no longer be eligible to apply for a universal bank licence.

The Reserve Bank of India (RBI) said the licences would be issued on tap without any break. On tap licensing means there will not be any cut-off date for applying for the licences.

Earlier, RBI was opening up the licence process periodically.

However, as per the draft guidelines issued by the RBI for on-tap licensing for universal banks, NBFCs can apply for universal bank licences.

In a departure from the earlier guidelines on universal banks dated February 22, 2013, the present guidelines include resident individuals and professionals having 10 years of experience in banking and finance as eligible persons to promote universal banks.

The draft guidelines said industrial and business houses would not be able to start a bank but they can invest in banks to the extent of 10%.

RBI said in its draft guidelines, "Large industrial/business houses are excluded as eligible entities but permitted to invest in banks to the extent of less than 10%."

However, these are draft guidelines and the central bank has invited comments from the public before finalising them.

Most industrial groups such as Reliance Industries, Vodafone and Aditya Birla Nuvo have got payment bank licences.

The central bank has allowed existing specialised activities to be continued from a separate entity proposed to be held under the non-operative financial holding company (NOFHC), subject to prior RBI approval and it being ensured that similar activities are not conducted through the bank as well.

According to the draft guidelines, the new set of banks proposed should be listed on the stock exchanges within six years of the commencement of business by the bank.

The promoter/s and the promoter group/NOFHC, as the case may be, shall hold a minimum of 40% of the paid-up voting equity capital of the bank, which shall be locked in for five years from the date of commencement of business of the bank. The promoter group shareholding shall be brought down to 15% within a period of 12 years from the date of commencement of business of the bank.

The NOFHC has now been made non-mandatory in case of promoters being individuals or standalone promoting or converting entities which do not have other group entities. The NOFHC is now required to be owned by the promoter/promoter group to the extent of at least 51% of the total paid-up equity capital of the NOFHC, instead being wholly owned by the promoter group.

The initial minimum paid-up voting equity capital for a bank Rs 500 crore, after which the bank will have a minimum net worth of Rs 500 crore at all times. The foreign shareholding in the bank would be an aggregate foreign investment limit of 74% same as the existing regulations.

The new banks will open at least 25% of its branches in unbanked rural centres (population up to 9,999 as per the latest census). The bank shall comply with the priority sector lending targets and sub-targets as applicable to the existing domestic scheduled commercial banks. The board of the bank should have a majority of independent directors.

Since April 2014, the central bank has granted 23 banking licences to new players -- two were given universal banking licences (April 2, 2014), 11 were issued payments banks licences (August 19, 2015) and 10 were given licences for small finance banks (September 16, 2015).