RBI Guidelines: Summary

Topics: Investment, Capital requirement, Fractional-reserve banking Pages: 3 (698 words) Published: April 15, 2014
New Banking License

Summarize the guidelines released by RBI:

Any Indian group or entity shall be eligible to promote a bank through a wholly owned Non-Operative Financial Holding Company (“NOFHC”). The group/entity certainly should be having sound financial condition, integrity, credentials and must be operational for 10 or more years. 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. Broadly understanding, the corporate structure as defined by the RBI norms seems to be fairly simple.  The promoter group/parent company must hold minimum 51% stake in the NOFHC (an individual not holding more than 10% voting equity) and the NOFHC must hold at least 40% voting equity capital in the new bank.

Minimum Capital:
The initial minimum paid up capital of the new bank should be INR 5 Billion out of which at least 40% should be directly held by the NOFHC which can be brought down to 20% after 5 years of the functioning of the bank and to 15% after 10 years.

Capital Adequacy Requirements:
NOFHC along with the bank and its other entities would be required to maintain a minimum capital adequacy ratio of 13% of its risk weighted assets for a minimum period of 3 years.

Foreign Direct Investment (“FDI”):
The FDI in the new banks should 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.

Other Miscellaneous Factors:
NOFHC or any of its financial entities should 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. The NOFHC should comply with the corporate governance guidelines as issued by RBI from time to time. RBI has also stated that the new bank should have at least 25% of its branches in unbanked rural areas with population up to 9,999....
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