The Reserve Bank of India (RBI) has issued final guidelines for setting up of new banks in the private sector, including corporate houses and non-banking finance companies (NBFCs), through a wholly-owned Non-Operative Financial Holding Company (NOFHC).
Key features of the guidelines are:
I. ‘Fit and Proper’ criteria:
I. ‘Fit and Proper’ criteria:
Entities / groups should have a past record of sound credentials and integrity, be financially sound with a successful track record of 10 years. For this purpose, RBI may seek feedback from other regulators and enforcement and investigative agencies.
II. Corporate structure of the NOFHC:
The NOFHC shall be wholly owned by the Promoter / Promoter Group. The NOFHC shall hold the bank as well as all the other financial services entities of the group.
III. Minimum voting equity capital requirements
for banks and shareholding by NOFHC :
The initial minimum paid-up voting equity capital for a bank shall be 5 billion. The NOFHC shall initially hold a minimum of 40 per cent of the paid-up voting equity capital of the bank which shall be locked in for a period of five years and which shall be brought down to 15 per cent within 12 years. The bank shall get its shares listed on the stock exchanges within three years of the commencement of business by the bank.
IV. Regulatory framework:
The bank will be governed by the provisions of the relevant Acts, relevant Statutes and the Directives, Prudential regulations and other Guidelines/Instructions issued by RBI and other regulators. The NOFHC shall be registered as a non-banking finance company (NBFC) with the RBI and will be governed by a separate set of directions issued by RBI.
V. Foreign shareholding in the bank:
The aggregate non-resident shareholding in the new bank shall not exceed 49% for the first 5 years after which it will be as per the extant policy.
VI. Corporate governance of NOFHC:
At least 50% of the Directors of the NOFHC should be independent directors. The corporate structure should not impede effective supervision of the bank and the NOFHC on a consolidated basis by RBI.
VII. Exposure norms:
The NOFHC and the bank shall not have any exposure to the Promoter Group. The bank shall not invest in the equity / debt capital instruments of any financial entities held by the NOFHC.
VIII. Other conditions for the bank :
a) The Board of the bank should have a majority of independent Directors.
b) The bank shall open at least 25 per cent of its branches in unbanked rural centres (population up to 9,999 as per the latest census)
c) The bank shall comply with the priority sector lending targets and sub-targets as applicable to the existing domestic banks.
d) Banks promoted by groups having 40 per cent or more assets/income from non-financial business will require RBI’s prior approval for raising paid-up voting equity capital beyond `10 billion for every block of `5 billion.
e) Any non-compliance of terms and conditions will attract penal measures including cancellation of licence of the bank.
** too much of conditions to have NOFHC...but it does not elaborate following things:
1. what about foreign investors interest in it?
2. 25% branches in rural centers...challenging if it doesn not deal with infra
3. how audit effective will be the entity?
4. it might put a challenge infront of SMEs' section of banking? is it?
