RBI to give new licensees more time to set up banks

Clarification today; application deadline may be extended but no leeway on priority-sector targets

The Reserve Bank of India (RBI) seems likely to allow new banking licensees more time to set up banks.  The earlier guidelines said aspirants would get a year after in-principle approval to do so, failing which the licences were to be withdrawn.

The banking regulator would announce a consolidated clarification on the new licence norms tomorrow. Sources said the central bank had got a little over 400 queries from aspirants after the final guidelines were announced. Instead of responding to each individually, RBI decided to do so at one go.

The sources said most of the queries pertained to the non-operative financial holding company (NOFHC) structure, made mandatory by RBI. It will allow the aspirants to set up a holding company after giving in-principle approval. The aspirants need not have such a structure in place while applying for setting up banks. RBI now feels a year might not be enough to set up such a structure, as approvals from boards and other legal requirements are involved.

RBI had said NOFHC shall be wholly owned by the promoter or the promoter group. It will hold the bank and other financial service entities of the group. At least half of the NOFHC directors should be independent ones and the corporate structure should not impede effective supervision of the bank and the NOFHC on a consolidated basis by RBI, the final norms had said.

Those looking for some relaxation on other fronts are likely to be disappointed. New banks would not get more time for meeting the Cash Reserve Ratio and Statutory Liquidity Ratio norms. In addition, the new banks would also have to meet the priority-sector norms from day one.

RBI, sources said, was open to extending the July 1 deadline for  applications in case it was specifically sought by an aspirant. Since the applicants have to give their entire business plan, duly approved by their respective boards, the central bank feels there is a genuine need to extend the deadline by a month or two.
THE STORY SO FAR

• Feb ’10: Pranab Mukherjee (then finance minister) announces RBI will issue fresh bank licences
• Aug ’10: RBI releases discussion paper on new bank licences
• Aug ’11: Draft norms are released
• Feb ’13: Final norms on new bank licences issued
• Jun 3: Clarifications on final guidelines to be issued. (The July 1 deadline to file applications likely to be extended)