Published: Sat, November 21, 2020
Economy | By

Capital needed for banking licence may be doubled if RBI accepts recommendations

Capital needed for banking licence may be doubled if RBI accepts recommendations

Also, nearly all the experts were of the view that the present prescription of listing within six years from commencement of operations, for universal bank in the "on-tap" licensing guidelines can be followed uniformly including small finance banks, which had been given only three years from reaching networth of Rs 500 crore, the report noted. For players such as Equitas and Ujjivan Small Finance Bank, this could help bring in more value for investors and remove the need for double listing of the holding company and the bank. NBFCs of corporate houses can also be included in this.

"As the licensing guidelines are now on continuing basis (on-tap), the Reserve Bank may put a system to review the initial paid up voting equity share capital/net worth requirement for each category of banks, once in five years", the committee said in its report that was released by the RBI on Friday evening.

In an interview with Subhomoy Bhattacharjee, Chaturvedi, who is also a member of the central board of governors of the RBI, talks about the reasoning behind the guidelines.

As on March 31, 2020, the asset size of India's NBFC sector, including housing finance companies, stood at 688 billion USA dollars.

India's Central Bank has suggested large non-banking financial companies (NBFCs) including corporates with asset size above 6.7 billion US dollars to convert into banks subject to certain conditions in a discussion paper released on Friday. For non-promoter shareholding, the current long-run shareholding guidelines may be replaced by a simple cap of 15% of the paid-up voting equity share capital of the bank, the committee said.

For Payments Banks intending to convert to a Small Finance Bank, the track record of three years of experience as Payments Bank may be considered as sufficient.


The central bank should also continue with the present structure of a non-operative financial holding company (NOFHC) for all new licences issued to universal banks. "However, it should be mandatory only in cases where the individual promoters / promoting entities/ converting entities have other group entities".

"While banks licensed before 2013 may move to an NOFHC structure at their discretion, once the NOFHC structure attains a tax-neutral status, all banks licensed before 2013 shall move to the NOFHC structure within 5 years from announcement of tax-neutrality", the panel has said.

The same year, RBI also granted licenses to 10 entities to start a small finance bank, which can offer basic banking services including accepting deposits and lending. "If new rules are tougher, legacy banks should also confirm to new tighter regulations, but transition path may be finalized in consultation with affected banks", the report said.

"Where corporate house is a promoter, strict regulations on the use of funds held with the bank and monitoring of related party transactions will be essential".

Capital has not been a problem for private banks. For Small Finance Bank, it was suggested to increase it from Rs 200 crore to Rs 300 crore. For large companies to float banks, the law has to be changed which could take longer, they said.

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