Bank aspirants seek clarity on eligibility

Clearing the air

Mumbai, July 10: Stakeholders have sought greater clarity from the Reserve Bank of India (RBI) on the eligibility norms it intends to stipulate for promoters looking to establish new private sector banks.

The central bank has also been asked to clearly define certain key parameters like real estate construction and well diversified group even as there has been a representation that foreign shareholding in new banks could go up to 74 per cent.

These were few of the comments and suggestions that were received by the central bank in response to its draft guidelines on license of new private banks that was placed on the public domain last August. This came after it had come out with a discussion paper on the subject.

It may be recalled that former finance minister Pranab Mukherjee had announced in the 2010-11 Union budget that the apex bank was planning to give some additional banking licences to private players.

The RBI, which has since then been involved in the process of seeking responses from various quarters before announcing the final guidelines, said that stakeholders have sought greater clarity in respect of

the stipulation on eligible promoters, clear definition of real estate construction, well diversified group and promoter group in the context of eligibility criteria.

The draft guidelines had said that promoters/promoter groups with diversified ownership, sound credentials and integrity that have a successful track record for at least 10 years in running their businesses shall be eligible to promote bank entity.

It had also said that a group undertaking real estate or capital market activities (particularly broking) on a significant scale should not considered for a bank licence. The RBI fears that these two businesses

apart from being riskier, represents a business model that is ``misaligned’’ with a banking model.

With many corporate entitiess having some exposure to real estate in one form of other, the apex bank was asked to come out with greater clarity on its definition of real estate construction.

Participants sought some relaxation from the apex bank with regard to the non-operative holding company (NOHC) which will hold the bank and other financial service companies regulated by the RBI or other financial sector regulators.

According to the apex bank, many industrial and business houses, NBFCs and a federation suggested that the requirement of the NOHC to be wholly owned by the promoters may be revisited, and diversified shareholding at the NOHC level be permitted.

As regards the minimum capital requirement of Rs 500 crore, the central bank has received a suggestion that this be raised to Rs 1000 crore.

There was also a suggestion that the time for dilution of promoter shareholding to 40 per cent in the bank should be increased from 2 years to 3 to 5 years horizon.

While the draft guidelines said that the aggregate non-resident shareholding from FDI, NRIs and FIIs in the new private sector banks shall not exceed 49 per cent for the first 5 years from the date of licensing of the bank, RBI was urged by some stakeholders to do away with this restriction and that foreign holding be permitted up to a level of 74 per cent as allowed at present.

However, few business houses, NBFCs felt that restricting foreign shareholding to 49 per cent for initial five years was not a deterrent.

Source:www.telegraphindia.com