RBI releases “Draft Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector”

The Reserve Bank of India (RBI) has released the ‘draft guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector’. But the final guidelines will be issued and the process of inviting applications for setting up of new universal banks in the private sector will be initiated after receiving feedback, comments and suggestions on draft guidelines from banks, non-banking financial institutions, industrial houses, other institutions and the public at latest by 30 June 2016.

Present guidelines include:
(i) Resident individuals and professionals having 10 years of experience in banking and finance as eligible persons to promote universal banks,
(ii) large industrial/business houses are excluded as eligible entities but permitted to invest in the banks to the extent of less than 10 per cent, 
(iii) Non-Operative Financial Holding Company (NOFHC) has now been made non-mandatory in case of promoters being individuals or standalone promoting/converting entities who/which do not have other group entities,
(iv) 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,
(v) Existing specialised activities have been permitted to be continued from a separate entity proposed to be held under the NOFHC subject to prior approval from the Reserve Bank and subject to it being ensured that similar activities are not conducted through the bank as well.

Based on the recommendations of the Narasimham Committee, Raghuram G. Rajan Committee and other viewpoints, the Reserve Bank came out with a policy discussion paper on Banking Structure in India. 

The Reserve Bank will start working on the framework for on-tap licensing as well as differentiated bank licences, building on the discussion Paper and using the learning from the recent licensing process, such as, the experience of licensing two universal banks in 2014 and granting in-principle approvals for Small Finance Banks and Payments Banks. The Reserve Bank has now worked out the framework for granting licences to universal banks on a continuous basis.

So now let’s discuss some questions related to this post :
1. RBI has released the draft guidelines for which segments ?
2. Expand the term NOFHC and name the committee based on which RBI will start working on the framework for on tap licensing for Universal Banks in private sector ?

Courtesy : Business Standard


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