New bank licences: 16 commandments

Live Mint ;Fri, Feb 22 2013. 05 59 PM IST

# Private firms, public sector entities as well as non-banking financial companies (NBFCs) are eligible to set up a bank. This needs to be done through a wholly owned non-operative financial holding company (NOFHC). Existing NBFCs, if considered eligible, will be permitted to promote a new bank or convert themselves into banks.

# NOFHC will be wholly owned by the promoter and will hold the bank as well as all other financial services entities of the group.

# Applicants should be financially sound with a 10-year track record.

# The initial minimum paid-up equity capital is Rs.500 crore.

# NOFHC will initially hold a minimum 40% stake in the bank for five years. This will be brought down to 15% in 12 years.

# The bank will have to get listed on stock exchanges within three years of the commencement of business.

# Foreign shareholding in the new bank is capped at 49% for the first five years.

# The new bank will have to maintain a minimum capital adequacy ratio of 13%—that is Rs.13 capital for every Rs.100 worth of assets—for the first three years.

# At least 50% of the directors of NOFHC should be independent directors.

# 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 NOFHC.

# The board of the bank should have a majority of independent directors.

# At least 25% of branches of a new bank should be set up in unbanked rural centres with a population of up to 9,999.

# Applications seeking bank licences should be submitted on or before 1 July.

# At the first stage, the applications will be screened by the Reserve Bank. Following this, the applications will be referred to a high-level advisory committee

# The decision to issue in-principle approval for setting up a bank will be taken by the Reserve Bank of India following the recommendations of the committee.

# The licence will remain valid for one year.