The Reserve Bank of India today released on its website, clarifications to queries on the Guidelines for Licensing of New Banks in the Private Sector.

The Reserve Bank of India released the Guidelines for Licensing of New Banks in the Private Sector on its website on February 22, 2013. Following the issue of the guidelines, RBI issued a press release on March 7, 2013 inviting queries from intending applicants seeking clarifications on the guidelines and also stated that considering that the clarifications provided would be of wider interest and use for all intending applicants, the Reserve Bank would post the clarifications on its website.

In all, RBI has received 443 queries from 34 individuals/ organisations. Upto the end of March 31, 2013, RBI had received 71 queries from 9 individuals/ organisations. As many as 330 queries from 19 individuals/ organisations were received between 5th to 10th April, 2013, of which 240 queries from 10 individuals/ organisations were received on April 10, 2013, i.e. on the last date. Further, 42 queries were received after April 10, 2013. The clarifications to all the queries have been provided. A few queries have been clubbed with other related queries for the sake of clarity and continuity.

A good number of queries have brought out issues relating to the provisions in the guidelines on the eligible promoters, ‘fit and proper’ criteria, corporate structure of the Non-Operative Financial Holding Company (NOFHC), foreign shareholding and on transition time to the new structure. While interpreting the replies, it must be kept in view that though the replies are specific to the questions, these must be seen in the wider context of the guidelines.

What’s New:

Validity period of the in-principle approval

As per the guidelines for licensing of new banks in the private sector issued vide RBI Press Release dated February 22, 2013, the validity of the in-principle approval for setting up of the NOFHC / bank was one year from the date of issue and would lapse automatically, thereafter.

The queries received from intending applicants brought out several complex issues pertaining to re-organisation of the existing corporate structure, restructuring of businesses and meeting the regulatory requirements. In the above context, RBI has been requested to clarify as to whether it would provide more time for a smooth transition from the existing structures to that prescribed in the guidelines as also for meeting the regulatory requirements. It has therefore, been decided to extend the validity period of the in-principle approval from one year to 18 months. Accordingly, the provisions at para 4(K) (vi) of the guidelines stand modified. It is expected that this would provide sufficient time for the Promoters/Promoter Group to comply with the various stipulations in the guidelines and the terms and conditions that would be set out while granting the in-principle approvals to successful applicants.

Applicability of norms of other regulators

Some of the provisions in the guidelines relate to Non-operative Financial Holding Company (NOFHC) structure which envisages holding of the bank and other regulated financial services entities of the Promoters/Promoter Group under the NOFHC and prudential exposure norms for the regulated entities. These requirements overlap with regulatory norms prescribed by other sectoral regulators like SEBI and IRDA. In this regard, queries were raised on adherence to different sector specific requirements. Such issues were examined in consultation with SEBI and IRDA. It has been decided that while the structure prescribed in the guidelines is the preferred structure, the intending applicants should approach the other financial sector regulators for bringing the entities regulated by them under the NOFHC. Their decision in this regard would prevail. Therefore, at the minimum, the proposed bank and all RBI regulated entities will necessarily be under the NOFHC.

Ajit Prasad

Assistant General Manager

Press Release : 2012-2013/2022

Validity of in-principle approval extended to allow smoother transition; applicants must coordinate NOFHC alignment with sector regulators. Two principal clarifications affect implementation: the validity period of the in-principle approval for setting up the NOFHC/bank has been extended to permit additional time for reorganisation, restructuring and compliance with regulatory conditions attached to approvals; and where NOFHC-related requirements intersect with other sectoral regulators, intending applicants must approach those regulators to bring their entities under the NOFHC, with those regulators' decisions prevailing, while the proposed bank and all RBI-regulated entities must, at minimum, be under the NOFHC.