banking licence

1. Thirteen changes in new bank
licensing norms
In the past two decades, the Reserve Bank of India (RBI) has allowed formation of
12 new banks. The guidelines on entry of new banks that were issued in January 1993
and were revised in 2001. On Friday, RBI released a new set of norms to allow creation
of more banks. Here is a brief comparison of the guidelines issued in 1993,
2001 and 2013:
ELIGIBLE 2001:The guidelines did
PROMOTERS: not mention any
1993: Individuals, corporate groups, change in the rules
pertaining to voting right. independent directors.
financial institutions were eligible
to set up banks. 2013: An individual belonging to the LISTING
2001:Individuals and financial promoter group along with his REQUIREMENTS:
institutions were allowed, but relatives can hold up to 10% of the 1993: New banks had to get listed on
large industrial houses were not total voting equity shares of the stock exchanges but no deadline
permitted to open banks. holding company. was given.
2013: Everyone is welcome. Corporate RING-FENCED 2001:The guidelines did not mention
groups, financial institutions and STRUCTURE: any change in listing
public sector entities can apply for a 1993: New banks had to lay down its requirements.
banking licence. loan policy and make prudential 2013: New banks must get listed
CORPORATE norms covering related party within three years.
transactions.
STRUCTURE: NEW
1993: New banks were formed as 2001:New banks were not allowed to
BUSINESSES:
public limited companies. lend to any entity belonging to
1993: New banks were not allowed to
promoter group.
2001:The guidelines did not mention set up a subsidiary or mutual fund
any change in the corporate 2013: Neither the holding company for at least three years after its
structure. nor the bank is allowed to lend or establishment.
invest in any entity belonging to
2013: Promoters must set up banks 2001:New banks were not allowed to
the promoter group.
only through wholly owned non- set up a subsidiary or mutual fund
operative financial holding MINIMUM for at least three years after
companies. CAPITAL: commencing business.
PROMOTERS' 1993: Minimum paid-up capital for 2013:Holding company is not permitted
banks was fixed at to set up any new financial services
CONTROL: ~100 crore. entity for at least three years.
1993: The guidelines did not mention
any cap on promoters' holdings in 2001:Initial minimum paid-up LOCATION
the bank. capital was fixed at ~200 crore.
PREFERENCES:
Banks were required to increase it
2001:Promoters had to maintain 1993: Preference was given to those
to ~300 crore within three years.
40% stake in the bank for at least who proposed to have
five years. 2013: Minimum paid-up capital has headquarters in centres that
been fixed at ~500 crore. do not have headquarters of
2013: Promoters through a holding
other banks.
company must hold 40% share in % CAPITAL ADEQUACY
the bank for five years. The stake %
% RATIO: 2001:New banks were allowed to set
must be cut to 20% in 10 years, 15% 1993: Banks had to maintain capital up headquarters in any location in
in 12 years. adequacy ratio of at least 8% from India but at least 25% of their
the very beginning. branches had to be in rural and
FOREIGN semi-urban centres.
SHAREHOLDING: 2001:Banks had to maintain capital
adequacy ratio of 10% on an 2013: At least 25% of new banks'
1993: The guidelines did not mention
ongoing basis. branches must be in unbanked
any cap on foreign shareholding in
rural centres.
the bank. 2013: Banks must maintain capital
2001:Non-residents were allowed to adequacy ratio of 13% for at least PRIORITY SECTOR
hold up to 40% in the bank. three years. TARGET:
Foreign banks acting as co- BOARD 1993: Some relaxations were allowed
promoters were allowed 20% stake in meeting priority sector targets in
COMPOSITION:
within the 40% ceiling. the first three years.
1993: Any director of another banking
2013: Aggregate non-resident company was not allowed to be a 2001:New banks had to meet priority
shareholding will be capped at director in the new bank. sector lending target of 40 per cent
49% for five years. of net bank credit as applicable to
2001:The guidelines did not mention
other domestic banks.
VOTING any change.
2013: New banks have to meet
RIGHT: 2013: At least 50% of the directors of
priority sector targets and
1993: Individual shareholder's voting the holding company must be
build priority sector lending
right was capped at independent. The bank's board
portfolio after commencing
1 per cent of the total voting right. must have a majority of
operations.
Compiled by Somasroy Chakraborty