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

Norms for ‘on-tap” licensing of Universal Banks in the Private Sector has been released by the Reserve Bank of India. RBI also stated that the validity of the in-principle approval issued by the RBI will be 18 months from the date of granting in-principle approval. As earlier in 2015, RBI approved the formation of 20 new institutions (small and payments banks) — to improve disbursal of small-ticket loans and services such as remittances.

Some of the key aspects of the Guidelines include: (i) resident individuals and professionals having 10 years of experience in banking and finance at a senior level are also eligible to promote universal banks, (ii) large industrial houses are excluded as eligible entities but are permitted to invest in the banks up to 10 %, (iii) Non-Operative Financial Holding Company (NOFHC) has been made non-mandatory in case of promoters being individuals or standalone promoting/converting entities who/which do not have other group entities, (iv) Not less than 51 % of the total paid-up equity capital of the NOFHC shall be owned by the promoter/promoter group, 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, (vi) The initial minimum paid-up voting equity capital for a bank shall be 500 crore rupees. Thereafter, the bank shall have a minimum net worth of 500 crore rupees at all times, (vii) The bank shall get its shares listed on the stock exchanges within six years of the commencement of business by the bank, (ix) Foreign shareholding in the bank would be as per the existing foreign direct investment policy subject to the minimum promoter shareholding requirement. At present, the aggregate foreign investment limit is 74 per cent, (x)The bank shall open at least 25 per cent of its branches in unbanked rural centres and should comply with the priority sector lending targets and sub-targets as applicable to the existing domestic scheduled commercial banks. 


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