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RBI issues draft guidelines for entry of new banks

RBI issues draft guidelines for entry of new banks
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First Published: Mon, Aug 29 2011. 04 12 PM IST
Updated: Mon, Aug 29 2011. 04 12 PM IST
Mumbai: The Reserve Bank of India (RBI) on Monday announced draft guidelines for new private banks, paving the way for industrial houses to enter the Rs64 trillion sector in the world’s second-fastest growing major economy.
According to the draft guidelines, private groups or entities with a diversified ownership and sound credentials having a “successful track record” of 10 years will be allowed to apply for new banking licence.
Such groups or entities cannot have more than 10% or more assets or income from real estate and capital market activities, RBI said.
The new banks can be set up only through a non-operative holding company that will control the bank and other financial service companies in the group, RBI said.
While the minimum capital required to set up new banks has been fixed at Rs500 crore, RBI has also set a cap of 49% for foreign holding. RBI has also stipulated that half the directors of the holding company should be independent, with a view to keeping in check the influence of promoters.
Finance minister Pranab Mukherjee in his February 2010 budget announced that the Indian central bank was considering giving licences to more private entities to set up banks.
Following this, in August 2010, RBI released a discussion paper on the relevant issues, including capital requirement, the profile of promoters and foreign investment.
RBI sent its proposal to the finance ministry in January this year but the process got delayed due to the differences between the government and the regulator on certain issues such as foreign direct holding.
While RBI favoured a lower cap of 49% in the initial few years, the government was in favour of a higher 74% limit to attract more foreign funds.
Among the contenders for a banking licence are Srei Infrastructure Finance Ltd, Religare Enterprises Ltd, Shriram Transport Finance Co. Ltd, L&T Finance Ltd, Bajaj Finserv Ltd, Indiabulls Financial Services Ltd, Birla Capital and Financial Services Ltd, Tata Capital Ltd and Reliance Capital Ltd.
After allowing nine new banks to open and converting a cooperative bank into a commercial bank in the mid-1990s, RBI allowed two more private entities to float banks in 2004.
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First Published: Mon, Aug 29 2011. 04 12 PM IST
More Topics: RBI | Capital | Banks | Licences | Private banks |