The wait for new banks got longer, tougher and fewer with the Reserve Bank making the entry norms more stringent and allowing more time to the in-principle licence-holders to get their structure in place. Dashing hopes of many aspirants, which are more than two dozens, the central bank said all those who clear the eligibility test will not get the licence and has also not offered a time line for issuing new licences.
The regulator said, in response to as many as 443 questions from 34 organisations, also clarified that the final section will be based more on subjective criteria apart from a decade-long track history. On the additional six months time-from the earlier 12 months to 18 months to meet the capital and holding structure of the NOFHC, the RBI said: "It has been decided to extend the validity period of the in-principle approval from one year to 18 months… so as to provide sufficient time for the promoters/promoter groups to comply with various stipulations in the guidelines issued on February 22." Yesterday, the RBI issued a 135-page clarifications to as many as 443 questions from 34 entities, most of which were regarding the provisions on eligible promoters, 'fit and proper' criteria, corporate structure of the proposed non-operative financial holding company (NOFHC), foreign shareholding and on transition time to the new structure.
The RBI further clarified that aspirants from the NFBC/insurance spaces will have to get the go-ahead from their respective regulators-Sebi and Irda-and that their views on the same will prevail over the RBI's own views on the proposed NOFHC being put up by them, which is the first and foremost criterion for having a bank licence. On the shareholding structure of the NOFHC, it said individuals cannot come together to form such an entity and that the NOFHC should remain an unlisted entity.
It further said if any individual belonging to promoter group chooses to become a promoter of the NOFHC, he can hold only up to 49 50 per cent of the voting equity shares and under 10 per cent of the total voting equity shares of the NOFHC. Refusing to ease norms for NBFCs like Sriram Capital, Mahindra Finance, Birla Finance to convert their non-baking operations into banks, it asked them to seek bank licences as fresh entities if they cannot meet the NOFHC criteria while being NBFCs. Stating that it will not be possible for it to issue licences to all eligible applicants, it said it will look for very high quality applications to launch new banks. "There is no predetermined number. We will be very selective while considering the applications. We will look for very high quality applications," it said, adding "it may, therefore, be not possible to issue licence to all the applicants meeting the eligibility criteria." On timeline for granting approvals, it said, "it will not be possible to indicate the timeline for grant of in-principle approvals at this stage."
On regulatory overlap, it said: "Queries were raised on the adherence to different sector specific requirements. Such issues were examined in consultation with Sebi and Irda," RBI said, adding any specific views expressed by these regulators would be prevail. "The general principle is that the regulated financial services sector entities in which a promoter group has 'significant influence' or 'control' will be held under the NOFHC. While this is a preferred structure, these requirements are subject to the regulations of the respective regulators." Analysts said the clarifications make it easier for corporates to get bank licences than NBFCs and also hailed the clarifications saying it leave lesser room for regulatory discretion and disputes.
"Today's clarifications have rendered a lot of clarity to the whole process and makes even more difficulty for many to finally get the lincence. The best part is that it has considerably reduced the element of discretion at the hands of the regulator and thus leaving limited rooms for disputes," according to Ernst & Young India partner and national leader for banking and financial services Ashvin Parekh. He also feared that the norms would see that very few NBFCs would be eligible for banking. I am afraid," Parekh said, adding only three-four players may finally get the licence. A disappointed GS Sundararajan of Shriram Group, which is keen to get into mainstream banking, said though there is a lot of detail in the clarifications, the RBI has maintained its overall structure. They have expanded a lot on all the aspects and the expansion has made it very complicated. "I unable to visualise the way ahead for a smooth passage and we will have to consult experts to chart our way ahead. I don't see much hassles like litigation ahead as RBI is always approachable and we can always clarify informally."
