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Guidelines for ‘on tap’ licensing of Universal Banks in the Private Sector

Reserve Bank of India (RBI) has received application from Annapurna Finance Private Limited, Bhubaneswar during the quarter ended December 31, 2022 under the Guidelines for ‘on tap’ licensing of Universal Banks in the Private Sector.

What are the Guidelines for ‘on tap’ licensing of Universal Banks in the Private Sector?

Reserve Bank of India (RBI) had issued guidelines for licensing of new banks in the private sector on February 22, 2013. Recognising the need for a ‘continuous authorisation’ policy, RBI had released the ‘Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector’ on August 01, 2016, replacing the ‘Stop and Go’ licensing policy. Key features of the Guidelines for ‘on tap’ licensing of Universal Banks in the Private Sector are given below.

Who are eligible promoters for setting up a universal bank in the private sector?

Promoter Experience required Other conditions
Individuals / professionals who are ‘residents’ 10 years of experience in banking and finance at a senior level

 
Entities / groups in the private sector that are ‘owned and controlled by residents’ [as defined in FEMA Regulations] Successful track record for at least 10 years If such entity / group in the private sector or group consisting of any NBFC, has total assets of ₹50 billion or more, the non-financial business of the group shall not account for 40% or more in terms of total assets / in terms of gross income.
Existing non-banking financial companies (NBFCs) that are ‘controlled by residents’

What is ‘Fit and Proper’ criteria?

Promoter / promoting entity / promoter group should have a past record of sound financials, credentials, integrity and have a minimum 10 years of successful track record.

What shall be the corporate structure of the bank?

  • The requirement of Non-Operative Financial Holding Company (NOFHC) is not mandatory for individual promoters or standalone promoting / converting entities who / which do not have other group entities. 
  • Individual promoters / promoting entities / converting entities that have other group entities, shall set up the bank only through an NOFHC. Not less than 51% of the total paid-up equity capital of the NOFHC shall be owned by the Promoter / Promoter Group. No shareholder, other than the promoters / promoter group, shall have significant influence and control in the NOFHC.
  • Specialised activities would be permitted to be conducted from a separate entity proposed to be held under the NOFHC subject to prior approval from RBI and subject to being ensured that similar activities are not conducted through the bank. 

What is the minimum capital requirement for the bank?

  • The initial minimum paid-up voting equity capital for a bank shall be ₹5 billion. 
  • Thereafter, the bank shall have a minimum net worth of ₹5 billion at all times.
  • The promoters and the promoter group / NOFHC shall hold a minimum of 40% of the paid-up voting equity capital of the bank which shall be locked-in for 5 years from the date of commencement of business of the bank. 
  • The promoter group shareholding shall be brought down to 15% within 15 years from the date of commencement of business of the bank.

What are other conditions?

  • The bank shall get its shares listed on the stock exchanges within 6 years of the commencement of business. 
  • The bank shall open at least 25% of its branches in unbanked rural centres (population up to 9,999 as per the latest census). 

How are applications for setting up a bank processed?

  • The applications are referred to a Standing External Advisory Committee (SEAC) constituted by RBI in March 2021 for a tenure of 3 years consisting of Smt. Shyamala Gopinath, former Deputy Governor, RBI (as chairperson) and 4 other members.
  • The Committee submits its recommendations to RBI for consideration. The Internal Screening Committee (ISC), consisting of the Governor and the Deputy Governors, will examines all the applications and then submit its recommendations to the Committee of the Central Board of RBI for the final decision to issue in-principle approval.
  • The validity of the in-principle approval issued by RBI is 18 months from the date of granting in-principle approval.
  • Applicants aggrieved by the decision of the Committee of the Central Board can prefer an appeal against the decision to the Central Board of Directors, within 1 month from the date of receipt of communication from RBI relating to the application not being considered.


References

Reserve Bank of India. (2016, August 01). 'Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector'. Retrieved from https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=3220

Reserve Bank of India. (2016, August 01). 'RBI releases Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector'. Retrieved from https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=37658

Reserve Bank of India. (2021, March 22). 'RBI announces Standing External Advisory Committee for evaluating Applications for Universal Banks and Small Finance Banks'. Retrieved from https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR128229C36F0A9A184899A6A032864CDEC131.PDF

Reserve Bank of India. (2023, January 04). 'RBI releases Name of Applicant under the Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=54993


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