India's Central Bank Unveils Draft Norms For New Commercial Banks

Monday, August 29, 2011
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Mumbai: Broking houses and realty firms are proposed to be made ineligible for new licences to operate commercial banks in the norms drafted by the country's central bank, which wants aspirants to be Indian entities with a sound track record of 10 years. "The aggregate non-resident shareholding in the new bank shall not exceed 49 percent for the first five years, after which it will be as per the extant policy," say the draft norms issued Monday by the Reserve Bank of India (RBI) for comments. "Entities in the private sector owned and controlled by residents with diversified ownership, sound credentials and integrity and having successful track record of at least 10 years will be eligible to promote banks," it says. Entities that earn 10 percent or more from realty, construction or broking activities, either individually or taken together in the past three years will not be eligible for such licences, the apex bank has proposed. The central bank, which has called for comments from all interested parties before Oct 31, also says that certain additional requirements may be stipulated in case of companies that earn 40 percent or more from non-financial business. Finance Minister Pranab Mukherjee had announced last year in his budget speech that it was the government's intent to open up the banking sector further. The Reserve Bank, on its part, had also launched a discussion paper on the subject. Among the companies and industrial houses hoping to apply for banking licences include the Tatas, the Aditya Birla Group, Anil Ambani-led Reliance Group, Bajaj Financial Services and Shriram Finance. The central bank said final guidelines will be issued and the process for licences will be started after receiving feedback on the draft guidelines as also after certain vital amendments to Banking Regulation Act, 1949. The other highlights of the draft norms include a minimum capital of Rs.500 crore. This apart, a wholly owned non-operative holding company also has to be set up to oversee both the banking and other financial companies within the promoter group. This holding company will have to be registered with the Reserve Bank of India as a non-banking finance company and will need to keep at least 50 percent independent directors on its board. The draft guidelines also propose that existing non-banking finance firms, if considered eligible, could either promote a new bank or convert themselves into banks. The new entrants must have a viable business model, outlining their financial inclusion plan. The other highlights of the draft include: - At east 25 percent of branches in unbanked rural centres - Exposure to promoters not to exceed 10 percent of the paid-up capital and reserves of the bank - Aggregate exposure to all promoter group entities not to exceed 20 percent - Bank should get its shares listed on stock exchanges within two years
Source: IANS
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