RBI releases clarifications on the new banks licensing guidelines - Angel Broking

RBI has released clarifications on the new banks licensing guidelines. Primarily it has extended validity of in-principle approval to 18 months from one year said earlier, in order to facilitate compliance with all requirements pertaining to realignment of corporate structure of the promoter group entities/NOFHC. Overall, in these clarifications, while RBI has cleared several condition specific ambiguities, it has refrained from spelling out any indicative criteria for the 'fit-and-proper' condition and kept it as a matter of its overall judgment. Following are the key clarifications spelled out by RBI:

Regarding the capital structure of NOFHC -

- the NOFHC will have to be wholly-owned by a single promoter group,

- individuals, their relatives and entities controlled by them must not hold more than 49%, cap on a single individual, relative and related entities at 10%

- Companies (forming part of the Promoter Group, with non-promoter holding >51%) shall hold a minimum 51% of the total voting equity shares, they need not be listed

For instance, say in the case of Shriram group, it may have to undergo complex restructuring, transforming its existing business under Shriram City and Shriram Transport to the bank/new company housed under the NOFHC , wholly owned by Shriram Transport/City Union, which might become an investment company. In case of L&T group, it appears as if application for banking license may have to be made through L&T, as clarifications provided could make it difficult for L&T Finance holding to become/create NOFHC, as it is neither wholly-owned nor has public shareholding >51%.

- Above provisions are not applicable for Public sector entities.

It clears ambiguity for PSU entities like LIC Housing, IFCI, IDFC etc, which by default have promoter shareholding >51%.

Regarding the re-alignment of existing financial services/other businesses -

- All form of lending activities of the group, to the extent permitted by the bank, must be held within a bank, while other lending activities which are not permitted to a bank such as promoter financing, loans for purchase of land, etc. would have to be wound up within a period of 18 months from the date of in-principle approval

- other regulated financial services entities (excluding entities in credit rating, commodity broking) where Promoters/Promoter Group has either significant influence or control have to be held under the NOFHC

- other non-regulated financial services entities of the Promoter Group need not be brought under the NOFHC structure

- Para banking activities such as credit cards, primary dealer, leasing, hire purchase, factoring etc can either be conducted by bank departmentally or through a separate entity/entities

- Activities such as insurance, stock broking, asset reconstruction, venture capital funding and infrastructure financing through Infrastructure Development Fund (IDF) sponsored by the bank can be undertaken only outside the bank Regarding the regulatory forbearance and transition issues for new banks' -

- No regulatory forbearance would be granted, either for maintenance of CRR and SLR, or for prudential/exposure and capital adequacy norms

- Tax issues pertaining to restructuring and others will be subject to extant tax laws

- No forbearance for the PSL - targets and sub-targets (however, as per RBI, the new banks will get on an average a period of 2-3 years, taking into account the 18 month validity period and the requirement to meet PSL norms based on net banking credit of previous year)

Although, RBI didn't quantify as to what could construe 'speculative' business activities, however, in its reply to a specific query on whether broking activities are speculative-in-nature, it refrained from assigning any percentage to contribution from broking activities to the overall revenues/assets (say less than 15% - to be considered as non-speculative) and gave an impression that it is not in hurry to explicitly rule out such cases and would consider overall context before arriving at a conclusion.

Source : Equity Bulls

Keywords