Realtors, brokers to get RBI lifeline

Set to be allowed to apply for bank licences in the final guidelines expected by the end of the month

The Reserve Bank of India (RBI) has softened its stance on allowing real estate firms and brokerages to apply for banking licences. Sources familiar with the developments said the final guidelines, to be announced by the end of the month, would set aside its earlier reservations about these entities.

In its draft guidelines released in August 2011, RBI had said entities having significant (10 per cent or more) income or assets or both from real estate construction and/or broking activities individually or taken together in last three years will not be eligible.”

Voicing its concerns, RBI had said “past experience with brokers on the boards of banks has not been satisfactory”.

RBI Deputy Governor Anand Sinha had recently said the regulator and the finance ministry would arrive at a common position on the issue. (PRIVATE PLAYERS IN BANKING)

The draft norms faced opposition from many quarters, including the finance ministry, on the ground that if banks were allowed to undertake broking activities, there was no reason why entities engaged in such legally permitted activities should be disallowed. Also, if banks could have sizeable exposure in real estate, which was seen by RBI as a sensitive sector, there was no reason why real estate developers should be barred from setting up banks.

The sources, however, said while the final norms would not bar real estate and brokerage firms, they would still insist on stringent fit and proper criteria for all sectors involved in volatile activities. “But allowing them to apply for banking licences does not automatically mean they will be allowed to set up banks,” the sources said.

The long-awaited final norms are likely to retain most of the proposals in the draft norms. For example, the minimum capital requirement is expected to remain at Rs 500 crore. However, the draft norms had clarified the actual capital would depend on the business plan of the promoters.

Also, a non-operative holding company (NOHC) can hold a minimum 40 per cent of the paid-up capital of the bank for five years from the date of licensing of the bank.

“Shareholding by NOHC in excess of 40 per cent shall be brought down to 20 per cent within 10 years and to 15 per cent within 12 years from the date of licensing of the bank,” the draft had said.

RBI has so far given licences to only 12 banks, in two phases, including conversion of a cooperative bank into a commercial one.

After issuing an in-principle licence, RBI would give one year to an entity to set up bank.