In Depth RBI Guidelines for Licensing of New Banks in the Private Sector When new banks will start operations

In Depth  RBI Guidelines for Licensing of New Banks in the Private Sector When new banks will start operations

The draft guidelines on ‘Licensing of New Banks in the Private Sector’ were
framed taking into account the experience gained from the functioning of the banks
licensed under the guidelines of 1993 and 2001 and the feedback and suggestions
received in response to the Discussion Paper.

The draft guidelines were placed on the RBI’s website on August 29, 2011 for comments. The comments received on the draft guidelines have been examined. The guidelines have been finalized taking into account the important amendments in December 2012 to the Banking Regulation Act, 1949, the suggestions/comments received on the draft guidelines and in
consultation with the Government of India.

1-
Over the last two decades, the Reserve Bank of India (RBI) licensed twelve
banks in the private sector. Ten banks were licensed on the basis of guidelines issued in January 1993.

The guidelines were revised in January 2001 based on the experience gained from the functioning of these banks, and fresh applications were invited. The applications received in response to this invitation were vetted by a High Level Advisory Committee constituted by the RBI, and two more licenses were issued.

2- Guidelines

(A) Eligible Promoters

(i) Entities / groups in the private sector that are ‘owned and controlled by
residents’ [as defined in Department of Industrial Policy and Promotion (DIPP)
Press Note 2, 3 and 4 of 2009 / FEMA Regulations as amended from time to
time] and entities in public sector shall be eligible to promote a bank through a
wholly owned Non-Operative Financial Holding Company (NOFHC).

(ii) Promoters / Promoter Groups with an existing non-banking financial
company (NBFC) will be eligible to apply for a bank license. If considered
eligible for promoting a bank, they will have to comply with the requirements
laid down in these guidelines as also the conditions specified in paragraph 2
(L) below.

(B) ‘Fit and Proper’ criteria

Promoters/ Promoter Groups as defined in these guidelines should be ‘fit and proper’
in order to be eligible to promote banks through a wholly owned NOFHC. RBI would
assess the ‘fit and proper’ status of the applicants on the basis of following criteria:

(a) Promoters/ Promoter Groups should have a past record of sound credentials
and integrity;

(b)  Promoters/ Promoter Groups should be financially sound and have a
successful track record of running their business for at least 10 years.

RBI may, inter alia, seek feedback on applicant Groups on these or any other
relevant aspects from other regulators, and enforcement and investigative agencies
like Income Tax, CBI, Enforcement Directorate, etc. as deemed appropriate.

(c)  Promoter / Promoter Groups’ business model and business culture should
not be misaligned with the banking model and their business should not
potentially put the bank and the banking system at risk on account of group
activities such as those, which are speculative in nature or subject to high
asset price volatility.
 
(C)  Corporate structure of the NOFHC

(i)     Promoter / Promoter Group will be permitted to set up a bank only through a
wholly owned Non-Operative Financial Holding Company (NOFHC).

(ii)    The capital structure of the wholly-owned NOFHC set up by Promoter /
Promoter Groups in Private Sector shall consist of:

a) voting equity shares not exceeding 10 per cent of the total voting
equity shares of the NOFHC held by any individual belonging to the
Promoter Group, along with his relatives (as defined in Section 6 of
the Companies Act 1956) and along with entities in which he and / or
his relatives hold not less than 50 per cent of the voting equity
shares, and

b) companies forming part of the Promoter Group whereof companies
in which the public hold not less than 51 per cent of the voting equity
shares shall hold not less than 51 per cent of the total voting equity
shares of the NOFHC. 

(iii)    The NOFHC shall hold the bank as well as all the other financial services
entities of the Group regulated by RBI or other financial sector regulators.
The objective is that the Holding Company should ring fence the regulated
financial services entities of the Group, including the bank from other
activities of the Group i.e., commercial, industrial and financial activities not
regulated by financial sector regulators and also that the bank should be ring
fenced from other regulated financial activities of the Group. Thus, only non-financial services companies / entities and non-operative financial holding
company in the Group and individuals belonging to Promoter Group will be
allowed to hold shares in the NOFHC. Financial services entities whose
shares are held by the NOFHC cannot be shareholders of the NOFHC.

(iv)    The general principle is that no financial services entity held by the NOFHC
would be allowed to engage in any activity that a bank is permitted to
undertake departmentally. In this context, it is clarified that:

(a) RBI requires certain specialized activities, such as, insurance,
mutual funds, stock broking, infrastructure debt funds, etc. to be
conducted through a separate Subsidiary / Joint Venture / Associate
structure;

(b) There are certain activities such as credit cards, primary dealers,
leasing, hire purchase, factoring, etc., which a bank can conduct either
from within the bank or through a separate outside structure
(Subsidiary / Joint Venture / Associate).

Accordingly, the activities at (a) above and activities at (b) above, which are
to be carried outside the bank will have to be carried out through separate
financial entities under the NOFHC.

(v)   RBI will have to be satisfied that the corporate structure does not impede the
financial services entities held by the NOFHC from being ring fenced, that it
would be able to supervise the bank, the NOFHC, and its Subsidiaries /
Joint Ventures / Associates on a consolidated basis, and that, it will be able
to obtain all required information relevant for this purpose, smoothly and
promptly. However, the primary supervision of the entities held by the
NOFHC will be by the sectoral regulators.

(vi)   The NOFHC shall not be permitted to set up any new financial services
entity for at least three years from the date of commencement of business of
the NOFHC. However, this would not preclude the bank from having a
subsidiary or joint venture or associate, where it is legally required or
specifically permitted by RBI.

(vii)  Only those regulated financial sector entities in which a Promoter Group has
significant influence or control will be held under the NOFHC.

(viii) The Promoter / Promoter Group entities / individuals associated with
Promoter Group shall hold equity investment, in the bank and other financial
entities held by it, only through the NOFHC.

(ix)    Shares of the NOFHC shall not be transferred to any entity outside the
Promoter Group. Any change in shareholding (by the Promoter Group) with
in the NOFHC as a result of which a shareholder acquires 5 per cent or
more of the voting equity capital of the NOFHC shall be with the prior
approval of RBI.

(D) Minimum voting equity capital requirements for banks and shareholding
by NOFHC

(i)  The initial minimum paid-up voting equity capital for a bank shall be `5
billion. Any additional voting equity capital to be brought in will depend on
the business plan of the Promoters.

(ii)  The NOFHC shall 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
from the date of commencement of business of the bank. 

(iii)  Shareholding by NOFHC in the bank in excess of 40 per cent of the total
paid-up voting equity capital shall be brought down to 40 per cent within
three years from the date of commencement of business of the bank.

(iv)  In the event of the bank raising further voting equity capital during the first
five years from the date of commencement of business, the NOFHC should
continue to hold 40 per cent of the enhanced voting equity capital of the
bank for a period of five years from the date of commencement of business
of the bank. Voting equity capital, other than the holding by NOFHC, could
be raised through public issue or private placements.

(v)  The shareholding by NOFHC shall be brought down to 20 per cent of the
paid-up voting equity capital of the bank within a period of 10 years, and to
15 percent within 12 years from the date of commencement of business of
the bank.

(vi)  The capital requirements for the regulated financial services entities held by
the NOFHC shall be as prescribed by the respective sectoral regulators. The
bank shall be required to maintain a minimum capital adequacy ratio of 13
 percent of its risk weighted assets (RWA) for a minimum period of 3 years
after the commencement of its operations subject to any higher percentage
as may be prescribed by RBI from time to time. On a consolidated basis, the
NOFHC and the entities held by it shall maintain a minimum capital
adequacy of 13 per cent of its consolidated RWA for a minimum period of 3
years.

(vii)  The bank shall get its shares listed on the stock exchanges within three
years of the commencement of business by the bank.

(E) Regulatory framework

(i) The bank will be governed by the provisions of the Banking Regulation Act, 1949,
Reserve Bank of India Act, 1934, Foreign Exchange Management Act, 1999,
Payment and Settlement Systems Act, 2007, other relevant Statutes and the
Directives, Prudential regulations, and other Guidelines/Instructions issued by RBI
and other regulators from time to time, including the regulations of SEBI regarding
public issues and other guidelines applicable to listed banking companies.

(ii) The NOFHC will be registered as a non-banking financial company (NBFC) with
the RBI and will be governed by a separate set of directions issued by RBI.

(iii) The financial entities held by the NOFHC will be governed by the applicable
Statutes and regulations prescribed by the respective financial sector regulators.

(F)  Foreign shareholding in the bank

Notwithstanding the current FDI policy, where foreign shareholding in private sector
banks is allowed up to a ceiling of 74 per cent of the paid-up voting equity capital, the
aggregate non-resident shareholding from FDI, NRIs, and FIIs in the new private
sector banks shall not exceed 49 per cent of the paid-up voting equity capital for the
first 5 years from the date of licensing of the bank.

No non-resident shareholder, directly or indirectly, individually or in groups, or through subsidiary, associate or joint venture will be permitted to hold 5 per cent or more of the paid-up voting equity capital of the bank for a period of 5 years from the date of commencement of
business of the bank. After the expiry of 5 years from the date of commencement of
business of the bank, the aggregate foreign shareholding would be as per the extant
FDI policy.

(G)  Corporate governance of NOFHC

The NOFHC should comply with the corporate governance guidelines as issued by
RBI from time to time. Such guidelines may include the following:

(i)      No NOFHC shall have as a Director in its Board of Directors, any person
who is a Director in any other NOFHC or a bank other than banking
company under it.

(ii)    No NOFHC shall be managed by any person-

(a)  who is a Director in any other company not being

(i)  a subsidiary of the NOFHC or

(ii)  a company registered under Section 25 of the Companies Act,
1956 (1 of 1956) or

(b)  who is engaged in any other business or vocation.

(iii)    NOFHC shall comply with such soundness standards in terms of corporate
governance including ‘fit and proper’ criteria, as applicable to banks  to the
extent they are appropriate.

(iv)    At least 50 per cent of the Directors of NOFHC shall be totally independent
of the Promoter or Promoter Group entities and their major customers and
major suppliers
.
(v)     The  Independent    Directors  referred to above  shall have special
knowledge or practical experience in respect of one or more of the following
matters, namely,

(a) Accountancy, (b) Agriculture,  rural economy and co-operation, (c)
Banking, (d) Insurance, (e) Economics, (f) Finance, (g)  Micro, Small and
Medium Enterprises (MSME), (h) Law; or, (i) any other matter, the special
knowledge of, and practical experience  in, which would, in the opinion of
the Reserve Bank, be useful to NOFHC.

(vi)     NOFHC  shall  be  managed  professionally with adequate corporate
governance standards.

(vii) Ownership and management shall be separate and distinct in the NOFHC,
the bank and entities regulated by RBI.

(viii)  The source of funds for Promoters’ and Promoter Groups’ equity in the
NOFHC shall be transparent and verifiable.

(ix)     NOFHC shall ensure that there is a policy in place for ascertaining the ‘fit
and proper’ criteria for appointment of Directors of the NOFHC.

(x)     NOFHC  shall  undertake  a  process of due diligence to determine the
suitability of the person for appointment and/or continuing to hold
appointment as a Director on its Board based on qualification, expertise,
track record, integrity and other ‘fit and proper’ criteria.

(xi)     NOFHC  shall  obtain  from  every Director, a Deed of Covenant and a
declaration and undertaking in its favor, as may be specified by RBI. 

(xii)  NOFHC shall obtain an annual declaration from its Directors that the
information provided has not undergone  change and where there is any
change, obtain requisite details from them forthwith.

(xiii)  NOFHC shall have a Nomination  Committee to perform due diligence in
respect of its Directors.

(xiv)  Nomination Committee shall scrutinize Deed of Covenant and declaration
and undertaking submitted  by each of its Directors and on a continuing
basis perform due diligence in respect of each of its Directors and the
NOFHC shall report to the Reserve Bank if any of its directors fails to fulfill
the ‘fit and proper’ criteria as specified by Reserve Bank from time to time.

(xv)  NOFHC shall have a  Remuneration Committee of the Board to decide on
the compensation payable to the key management executives of NOFHC.

(H)  Prudential Norms for the NOFHC
The prudential norms will be applied to NOFHC both on stand-alone as well as on a
consolidated basis. Some of the major prudential norms are as under:

 (i) NOFHC on a stand-alone basis

(a) Prudential norms for classification,  valuation, and operation of investment
portfolio5
.
(b) Prudential norms on Income Recognition, Asset Classification and
Provisioning pertaining to Advances6
.
(c) The NOFHC for the purpose of its liquidity management can make
investments in bank deposits, money  market instruments, government
securities and actively traded bonds and debentures.

(d) The NOFHC shall create a reserve  fund and shall, out of the balance of
profit each year as disclosed in the profit and loss account and before any
dividend is declared, transfer to the  reserve fund a sum equivalent to not
less than 25 per cent of such profit.

(e) Any dividend proposed to be paid by the NOFHC to its shareholders shall be
payable only out of the profits and further subject to meeting the following
conditions:

•  Compliance with all prudential norms prescribed for the NOFHC
both on stand-alone as well as consolidated level.

•  There are no serious observations by any of the regulators /
supervisors of the NOFHC as well as of entities held under it.

•  The financial statements of the  NOFHC both on stand-alone and
consolidated level shall be free of any qualifications by the statutory
auditors, which have an adverse bearing on the profit during that
year. In case of any qualification to that effect, the net profit should
be suitably adjusted while computing the dividend payout ratio.
(f)  The NOFHC shall closely monitor its liquidity position and interest rate risk.
For this purpose, the NOFHC shall prepare a structural liquidity statement
(STL) and interest rate sensitivity statement (IRS)
.
(g) The NOFHC may have leverage up to 1.25 times of its paid-up equity
capital and free reserves. The actual leverage assumed within this limit
should be based on the ability of the NOFHC to service its borrowings from
its dividend income.

(ii) NOFHC on a consolidated basis

(a) NOFHC shall maintain capital adequacy and other requirements on a
consolidated basis based on the prudential guidelines on Capital Adequacy
and Market Discipline – New Capital  Adequacy Framework (NCAF) issued
under Basel II framework and Guidelines on Implementation of Basel III
Capital Regulations in India , when implemented.

(b) The NOFHC shall prepare consolidated financial statements and other
consolidated prudential reports in terms  of the Guidelines for ‘consolidated
accounting and other quantitative methods to facilitate consolidated
supervision’ contained in  circular DBOD.No.BP.BC.72 /21.04.018/2001-02
dated February 25, 20039  and in terms of Scope of Prudential Consolidation
indicated under Basel III Capital Regulations
.
(c) The consolidated NOFHC  shall adhere to the instructions on disclosure in
Financial Statements - Notes to Accounts
.
(d) The consolidated NOFHC shall prepare a structural liquidity statement
(STL), interest rate sensitivity statement (IRS)

(I) Exposure norms

(i) Exposure norms for stand-alone NOFHC

(a) NOFHC shall not have any credit and  investment (including investment
in equity / debt capital instrument ) exposure to any entity belonging to the
Promoter Group except those held under it.

(b)  NOFHC shall not have any equity, debt capital and credit exposure to any
entity outside the Group including other NOFHCs or other banks, financial
and non-financial entities.

(c)  NOFHC’s exposure for the purpose  of its liquidity management [please
refer to paragraph 2 (H) (i) (c)] to  non-Group entities will be within the
extant exposure limits
.
(ii) Exposure norms for consolidated NOFHC

(a)  The consolidated NOFHC shall  adhere to all the exposure norms
 on the consolidated basis such as single and group borrower exposure limits,
capital market exposure limit etc., as applicable to bank groups.

(b)  The consolidated NOFHC’s investments in the capital instruments issued
by banking, financial and insurance entities outside its Group together with
the unconsolidated  financial and insurance entities within the Group
should not exceed 10 per cent of its consolidated capital funds.

(iii) Exposure norms for the bank

(a)  The bank cannot take any credit and investments (including investments in
the equity/debt capital instruments) exposure on the Promoters / Promoter
Group entities or individuals associated with the Promoter Group or the
NOFHC.

(b)  The bank shall not invest in the equity / debt capital instruments of any
financial entities under the NOFHC.

(c) The bank’s credit and investment (other than equity / debt capital
instruments) exposure to financial entities under the NOFHC will be subject
to Intra-Group Transactions & Exposures (ITEs) norms
.
(d)  The bank cannot invest in the equity of other NOFHCs.

(e)  The bank’s investments in equity / debt capital instruments of other banks /
financial institutions  including other NOFHCs
 should be guided by the extant cross holding norms .

(f)  The bank’s permissible exposures will be as per extant exposure norms20
.
(g)  Investment in equity by the bank in the entities engaged in financial and
non-financial activities, outside the Promoter Group would be subject to a
limit of 10 per cent of the investee entity’s paid-up  share capital or 10 per
cent of the bank’s paid-up share capital and reserves, whichever is less,
and the aggregate of all such investments should not exceed 20 per cent of
the bank’s paid-up share capital and reserves.

(iv) Exposure norms for the financial entities (other than bank) held by the
NOFHC

There is a need for the financial entities  held by the NOFHC to follow certain
overarching principles in order to avoid round tripping of funds and to avoid
circular movement of funds in the banking group, such as :

(a) The financial entities held by NOFHC shall not have any credit and
investments (including investments in the equity/debt capital instruments)
exposure to the Promoters / Promoter Group entities or individuals
associated with the Promoter Group or the NOFHC.

(b)  The financial entities held by NOFHC  shall not make investment in the
equity / debt capital instruments amongst themselves.

(c)  The entities held by the NOFHC cannot invest in equity instruments of other
NOFHCs.

(J)  Business Plan for the bank

(a)  Applicants for new bank licenses will  be required to furnish their business
plans for the banks along with their  applications. The business plan will
have to address how the bank proposes to achieve financial inclusion.

(b)  The business plan submitted by the applicant should be realistic and viable.
In case of deviation from the stated  business plan after issue of license,
RBI may consider restricting the bank’s expansion, effecting change in
management and imposing other penal measures as may be necessary.

(K) Other conditions for the bank

(i)     The Board of the bank should have a majority of independent Directors.

(ii)     Any  acquisition  of  shares , which will take the aggregate holding of an individual / entity / group to the equivalent of 5 per cent or more of the paid-up voting equity capital of the bank, will require prior approval of RBI.

(iii)    No single entity or group of related entities, other than the NOFHC, shall
have shareholding or control, directly or indirectly, in excess of 10 per cent
of the paid-up voting equity capital of the bank.

(iv)    Without prejudice to the requirements under paragraph 2  (I) (iii) (a), the
bank shall maintain arm’s length relationship with Promoter / Promoter
Group entities, and the major suppliers and major customers of these
entities.

(v)    In taking a view on whether an entity belongs to a particular Promoter Group
or not or whether the entities are linked / related to the Promoter Group, RBI
will be guided by the provisions of the Banking Regulation Act, 1949,
Accounting Standards and other related factors. The decision of the RBI in
the matter will be final.

(vi)    The bank shall comply with the priority sector lending targets and sub-targets as applicable to the existing  domestic banks. For this purpose, the
bank should build its priority sector lending portfolio from the
commencement of its operations.

(vii)  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) to avoid over
concentration of their branches in metropolitan areas and cities, which are
already having adequate banking presence.


(viii) The bank should operate on Core Banking Solutions (CBS) from the
beginning with all modern infrastructural facilities.

(ix)  The bank should have a high-powered Customer Grievances Cell to handle
customer complaints.

(x)    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. RBI
while examining such proposals would  primarily look into whether the
corporate governance standards are adequate, whether information from
Promoter Group has been forthcoming to facilitate consolidated supervision
and whether the Board members remain ‘fit and proper’.

(xi)  The compliance of terms and conditions laid down by RBI is an essential
condition of grant of license. Any non-compliance will attract penal
measures including cancellation of license of the bank.

(L) Additional conditions for NBFCs promoting / converting into a bank
The Promoters / Promoter Groups with an existing NBFC, if considered eligible for a
bank license, will have three options: 

(a)  Promote a bank, if some or all the activities undertaken by the NBFC are not
permitted to be undertaken by banks departmentally. In such cases, the
activities undertaken by the NBFC which banks are allowed to undertake
departmentally, will have to be transferred to the new bank, or

 (b) Convert the NBFC into a bank, if all the activities undertaken by it are allowed
to be undertaken by a bank departmentally. In such a case, the NBFC shall
have a minimum net worth of `5 billion, or

(c)  Convert the NBFC into a bank and divest the activities, which banks are not
allowed to undertake departmentally. In  such a case, the bank shall have a
minimum net worth of `5 billion.

Under the above options, the Promoters will have to set up a NOFHC. The NOFHC
and the bank set up under it should comply with all the requirements laid down in the
guidelines. RBI will consider allowing the bank to take over and convert the existing
NBFC branches into bank branches only in the Tier 2 to 6 centres. Existing branches
of the NBFC in Tier 1 centres may be allowed to convert into bank branches only
with the prior approval of RBI and subject to the existing rules / methodology
applicable to domestic banks regarding opening of branches in these centres and
also subject to maintaining 25 per cent of the bank branches in unbanked rural
centres (population up to 9,999 as per the  latest census) required of all banks as
specified in 2 K (vii) above.

3. Procedure for application
(i)  In terms of Rule 11 of the Banking Regulation (Companies) Rules, 1949
applications shall be submitted in the prescribed form (Form III). In addition,
the applicants should furnish the requisite information as per the Annex II.
(ii)  Applications for setting up banks in the private sector, along with other details
as mentioned above, should reach the following address on or before July 1,
2013.

The Chief General Manager-in-Charge,
Department of Banking Operations and Development,
Reserve Bank of India, Central Office,
12th
 Floor, Central Office Building,
Shahid Bhagat Singh Road,
Mumbai-400001

4. Procedure for RBI decisions

(i)  In view of the increasing emphasis on stringent prudential norms,
transparency, disclosure requirements, and modern technology, banks need to
have strength and efficiency to work profitably in a highly competitive
environment.

(ii)  Banking being a highly leveraged business, licenses shall be issued on a very
selective basis to those who conform to the above requirements, who have an
impeccable track record and who are likely to conform to the best international
and domestic standards of customer service and efficiency. Therefore, it may
not be possible for RBI to issue licenses to all the applicants meeting the
eligibility criteria prescribed above. 


(iii)  At the first stage, the applications will be screened by RBI to ensure  prima
facie eligibility of the applicants. RBI may apply additional criteria to determine
the suitability of applications, in addition to the ’fit and proper’ criteria
prescribed at paragraph 2(B). Thereafter, the applications will be referred to a
High Level Advisory Committee to be set up by RBI.

(iv)  The High Level Advisory Committee  will comprise eminent persons with
experience in banking, financial sector, and other relevant areas. The
constitution of the committee will be announced shortly.

(v)  The High Level Advisory Committee  will set up its own procedures for
screening the applications. The Committee will reserve the right to call for
more information as well as have discussions with any applicant/s and seek
clarification on any issue as may be required by it. The Committee will submit
its recommendations to RBI for consideration. The decision to issue an in-principle approval for setting up of a bank will be taken by RBI. RBI’s decision
in this regard will be final.

(vi)  The validity of the in-principle approval issued by RBI will be one year from
the date of granting in-principle approval and would thereafter lapse
automatically. Therefore, the bank will have to be set up within one year of
granting the in-principle approval.

(vii)  After issue of the in-principle approval for setting up of a bank, if any adverse
features are noticed subsequently  regarding the Promoters or the
companies/entities with which the Promoters are associated and the group in
which they have interest, the RBI may impose additional conditions and if
warranted, it may withdraw the in-principle approval.

(viii)  In order to ensure transparency, the names of the applicants for bank licenses
will be placed on the RBI website after  the last date of receipt of the
applications.

Definitions

I. Promoter

Promoter means, the person who together with his relatives (as defined in Section 6
of the Companies Act, 1956), by virtue of his ownership of voting equity shares, is in
effective control of the NOFHC, and includes, wherever applicable, all entities which
form part of the Promoter Group.

II. Promoter Group “Promoter Group” includes:

(i) the promoter;

(ii)  relatives of the promoter as defined in Section 6 of Companies Act 1956; and

(iii) in case promoter is a body corporate:

(A)  a subsidiary or holding company of such body corporate;

(B)  anybody corporate in which the promoter holds ten per cent or more
of the equity share capital or which holds ten per cent or more of the
equity share capital of the promoter;

(C)  anybody corporate in which a group of individuals or companies or
combinations thereof which hold twenty per cent or more of the equity
share capital in that body corporate also holds twenty per cent or more
of the equity share capital of the promoter;

(D)  Joint venture (as defined in terms of AS 23) with the promoter;

(E)  Associate (as defined in terms of AS 27) of the promoter;

(F)  Related party (as defined in terms of AS 18) of the promoter; and

(iv) in case the promoter is an individual:

(A)  anybody corporate in which ten per cent or more of the equity share
capital is held by the promoter or a relative of the promoter or a firm or
Hindu Undivided Family in which the promoter or any one or more of
his immediate relative is a member;

(B)  anybody corporate in which a body corporate as provided in (A)
above holds ten per cent or more, of the equity share capital;

(C)  any Hindu Undivided Family or firm in which the aggregate
shareholding of the promoter and his immediate relatives is equal to or
more than ten per cent of the total; and

(v)  all persons whose shareholding is aggregated for the purpose of disclosing in
the prospectus  under the heading "shareholding of the promoter group";

(vi) Entities sharing a common brand name with entities discussed in A, B, C, D
E, F where the promoter is a body corporate and A, B, C where the promoter
is an individual;

Provided that a financial institution, scheduled bank, foreign institutional
investor or mutual fund shall not be deemed to be promoter group merely by
virtue of the fact that ten per cent or more of the equity share capital of the
promoter is held by such institution.

Additional information to be furnished by the Promoters

1. Project Report

A project report covering business potential and viability of the proposed bank,
the business plan, the product lines, proposed regional spread, level of
information technology capability, and any other information that they consider
relevant. The project report should give as much concrete details as feasible,
based on adequate ground level information  and avoid unrealistic or unduly
ambitious projections. The business plan should address how the bank proposes
to achieve financial inclusion.

2.  Pattern of shareholdings and management
As the Promoters/ Promoter Groups are required to  set up a bank through a
wholly-owned Non-Operative Financial Holding Company (NOFHC), the
applicants should furnish detailed information about the persons/entities, who
would subscribe to the voting equity  capital (shareholding pattern) of the
proposed NOFHC and the bank, including foreign equity participation in the
proposed bank.

Where the applicant belongs to an existing group, the details of ownership,
management and corporate structure of all  the entities in the group should be
furnished, including an organogram showing shareholding and management.

3.  Financial statements and credit information

Applications should also be supported by detailed information on the background
of Promoters, their expertise, track  record of business  and financial worth,
Memorandum and Articles of Association  and latest financial  statements of the
Promoter entities for the past ten years, income tax returns for last three years,
details of Promoters’ direct and  indirect interests in various
entities/companies/industries, details of credit/other facilities availed by the
Promoters/ Promoter entity(ies)/ other  group entity(ies) along with details of the
bank’s/ financial institution’s branches where such facilities were / are availed.


4. Any other information

The Promoters may furnish any other  relevant information and documents
supporting the applications.  Further, the RBI may call for any other additional
information, as may be required, in due course.

When New Private banks will open or start to work?

If Everything goes  as per above guidelines  new Private banks will start their operations from March 2014.

Suggested Reading -

Know 16  facts  about RBI Guidelines for Licensing of New Banks in the Private Sector


Reality views by sm –

Saturday, February 23, 2013

Tags – RBI Guidelines New Banks Private Banks