Reserve Bank of India (RBI) issued guidelines for setting up new banks in the private sector vide Press Release dated 22.02.2013. The last date for receipt of applications was 01.07.2013. In all, RBI has received 26 (twenty six) applications.

At the first stage, the applications will be screened by RBI to ensure prima facie eligibility of the applicants, including the assessment of ‘fit and proper’ status of applicants. Thereafter, the applications will be referred to a High Level Advisory Committee to be set up by RBI. In view of the processes involved, it is expected to issue ‘in-principle’ approvals for new banks by the first quarter of 2014.

The safeguards and prudential regulations which have been put in place in the guidelines for the new bank, the parent Non-Operative Financial Holding Company (NOFHC) and the consolidated bank to serve as adequate safeguards to deal with conflict of interest situations, inter-alia, include ‘fit and proper’ criteria; corporate structure of the Non-Operative Financial Holding Company (NOFHC); no exposure to the promoter group by bank, NOFHC and other financial sector entity under the NOFHC and; corporate governance of NOFHC and stipulation of majority of independent directors on the Board of the Bank.

This was stated by Minister of State for Finance, Shri Namo Narain Meena in written reply to a question in Rajya Sabha today.

Fit and proper criteria guide new bank licensing, with NOFHC structure and independent board safeguards imposed. RBI's new bank licensing framework mandates an initial prima facie eligibility screening, including assessment of fit and proper status, referral to a High Level Advisory Committee, and envisaged in-principle approvals. The guidelines require a Non-Operative Financial Holding Company (NOFHC) corporate structure, prohibit promoter-group exposures across the bank, NOFHC and affiliated financial entities, and impose corporate governance rules including a majority of independent directors to mitigate conflicts of interest.