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RBI issues guidelines for on-tap banking licenses, big corporates barred

The Reserve Bank of India (RBI) on Monday issued new guidelines for ‘on tap’ banking that seek to encourage non-banking finance companies (NBFCs) to turn themselves into full-fledged banks. Individuals, private sector entities and NBFCs
India TV Business Desk New Delhi August 02, 2016 14:07 IST
India TV Business Desk

The Reserve Bank of India (RBI) on Monday issued new guidelines for ‘on tap’ banking that seek to encourage non-banking finance companies (NBFCs) to turn themselves into full-fledged banks.

Individuals, private sector entities and NBFCs can apply for the banking licenses.The minimum paid-up capital has been kept at Rs 500 crore with the foreign investment limited to 74 per cent. 

However, the RBI has barred large industrial houses from owning more than 10 per cent stake in such banks. 

The opening of ‘on tap’ banking was one of the many agendas on outgoing Governor Raghuram Rajan's to-do list. 

RBI had last issued guidelines for licensing of new banks in the private sector on February 22, 2013. Consequently, the Reserve Bank issued in-principle approval to two applicants and they have since established the banks.

Under the guidelines issued yesterday, Individuals or professionals who are ‘residents’ and have 10 years of experience in banking and finance at a senior level can apply for the banking licenses. Private sector entities or groups that are ‘owned and controlled by residents with a successful track record for at least 10 years’ can apply for the banking licenses. 

Corporates with total assets of Rs 5,000 crore and more are eligible provided the non-financial business of the group does not account for 40 per cent or more in terms of total assets or gross income. This will rule out the chances of business conglomerate such as Reliance, Aditya Birla Group and Tata from having banking licenses under this category. 

Existing non-banking financial companies (NBFCs) that are ‘controlled by residents’ and have a successful track record for at least 10 years can apply. 

The banks will be regulated under the provisions of Banking Regulations Act, 1949 and the existing guidelines on prudential norms as applicable to scheduled commercial banks. 

The bank will have to get listed on the stock exchanges within six years of the commencement of business and will have to open at least 25 per cent of its branches in unbanked rural centres.

The Reserve Bank will set up a Standing External Advisory Committee (SEAC) which will examine the applications.