Markets Exchanges,riskregulation,Transaction Banking,

Markets Exchanges,riskregulation,Transaction Banking,

Kolkata -- The Reserve Bank of India (RBI) issued new licensing guidelines that seek to encourage non-banking finance companies (NBFCs) to turn themselves into full-fledged banks, restrict the country's biggest conglomerates to a 10% stake in new lenders and bar state-run companies. The opening of the on-tap licensing window ticks one more item off Governor Raghuram Rajan's to-do list before he ends his tenure next month. Previously, those wanting to set up banks had to apply as and when the central bank invited applications. Now individuals, private sector entities and NBFCs are free to apply whenever they feel ready. The minimum paid-up capital has been kept at Rs 500 crore with the foreign investment limit pegged at 74%.

Private sector entities or groups "owned and controlled by resident Indians with sound track record of 10 years can apply", according to the norms announced on Monday.

Corporates with total assets of Rs 5,000 crore and more are eligible as long as 60% of their businesses are engaged in financial services. This will rule out business houses such as the Tatas, Aditya Birla Group, Reliance and others, although they can take a 10% stake in such entities.

Those eligible will include Edelweiss, IIFL, Shriram and others, while public sector entities won't be able to apply for bank licences. These are among the changes that RBI has made in the guidelines that prevailed when Bandhan and IDFC were given licences in 2014.

At that time, applicants had included Aditya Birla Nuvo, part of the Aditya Birla Group; Bajaj Finance, part of the Bajaj Group; and Reliance Capital, controlled by billionaire Anil Ambani.

"The guidelines reflect RBI's growing preference for large NBFCs to convert into banks for greater supervision and system stability," said India Ratings Managing Director Anand Bhowmik. For NBFCs, turning into banks will translate into lower cost of funding as they can raise deposits from retail customers. Several rules have been relaxed. The promoter group or holding company now gets 15 years to lower its holding to 15% from 40% versus 12 years. Also, individuals and standalone NBFCs don't need to set up a non-operative financial holding company (NOFHC), and the minimum paid-up equity capital norm for a promoter or promoter group has been lowered to 51% from 100%. Some have been tightened.

The board should have a majority of independent directors, against the previous rule of minimum 50%, RBI said. The regulator's in-principle approval will be valid for 18 months and lapse thereafter. The bank should open at least a fourth of its branches in unbanked rural centres and get its shares listed within six years of commencement of business. The limit of 74% is in line with existing foreign direct investment policy.

Re-disseminated by The Asian Banker