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Norms on New Bank Licences After Bill Amendment

Monday, September 12, 2011
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New Delhi: The Reserve Bank of India is likely to issue the final guidelines for granting bank licences to corporates only after Parliament approves the Banking Laws (Amendment) Bill, 2011. The final guidelines on new banking licences would be released only after the necessary amendments to the Banking Laws (Amendment) Bill, which seeks to give more power to the regulatory powers of the RBI, sources said. The central bank had last month issued the draft guidelines which pegged the minimum capital needed to set up a commercial bank by a corporate house having successful track record of 10 years at Rs 500 crore. It is to be noted that the Banking Laws (Amendment) Bill was introduced in Parliament in March this year. Sources added that empowering the RBI is essential for obtaining information about the other businesses of the corporate houses seeking banking licences in order to protect depositors' interests. Banking companies are engaged in multifarious activities through the medium of associate enterprises. It has, therefore, become necessary for the Reserve Bank, as the regulator of the banking companies, to be aware of the financial impact of the business of such enterprises on the financial position of the banking companies, sources said. It is, therefore, proposed to confer power upon the RBI to call for information and returns from the associate enterprises of banking companies also and to inspect the same, sources added. The amendment seeks to allow the RBI to supersede the board of a banking company for a total period not exceeding 12 months. The proposed amendment moved by the government also exempts mergers and acquisitions in the banking sector from the scrutiny of the Competition Commission of India. According to the draft guidelines, companies which are primarily engaged in the real estate or stock broking will not be eligible for promoting bank. "Entities or groups having significant [10 per cent or more] income or assets or both from real estate, construction and broking activities individually or taken together in the last three years will not be eligible to set up new banks," the draft said. On foreign holding, it said the aggregate non-resident shareholding in the new bank should not exceed 49% for the first five years. At present, the foreign shareholding in private sector banks is allowed up to 74 percent of the paid-up capital.
Source: PTI
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