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New Banking Licenses - RBI issues draft guidelines

The Reserve Bank of India has issued draft guidelines for grant of license to new banks in private sector. In line with the note of caution exercised by RBI in earlier years, entities with over 10% of income or assets from or in activities such as real estate construction or capital market activities like broking will not be eligible to promote banks.

The draft guidelines stress on proven track record of at least 10 years in running their business to be eligible to set up banks through a wholly-owned Non Operating Holding Company (NHOC) structure. The aggregate non-resident share-holding is pegged at 49% for the first five years from grant of licence. The minimum paid-up capital has been fixed at Rs. 500 crore. A financial inclusion clause requiring at least a fourth of branches to be maintained in unbanked rural areas is also part of the guidelines. Comments have been sought from the industry and other stake holders till 31st October 2011.

Top industrial houses, microfinance institutions, NBFCs are all in fray to enter the banking sector. However, the actual grant of licence will have to wait till the Banking Laws (Amendment) Bill, 2011 is passed. Certain issues like grant of regulatory powers to RBI superseding other regulatory authorities may also delay passage of the bill.

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