Thirteen changes in new banking licencing 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:
1993: Individuals, corporate groups, financial institutions were eligible to set up banks.
2001: Individuals and financial institutions were allowed, but large industrial houses were not permitted to open banks.
2013: Everyone is welcome. Corporate groups, financial institutions and public sector entities can apply for a banking licence.
1993: New banks were formed as public limited companies.
2001: The Guidelines did not mention any change in corporate structure.
2013: Promoters must set-up banks only through wholly owned non-operative financial holding companies.
1993: The guidelines did not mention any cap on promoter’s holding in the bank.
2001: Promoters had to maintain 40% stake in the bank for at least five years.
2013: Promoters through a holding company must hold 40% share in the bank for five years. The stake must be cut to 20% in 10 years, 15% in 12 years.
1993: The guidelines did not mention any cap on foreign shareholding in the bank.
2001: Non-residents were allowed to hold up to 40% in the bank. Foreign banks acting as co-promoters were allowed 20% stake within 40% ceiling.
2013: Aggregate Non-resident shareholding will be capped at 49% for five years.
1993: Individual shareholder’s voting right was capped at 1% of the total voting right.
2001: The guidelines did not mention any change in rules pertaining to voting right.
2013: An individual belonging to the promoter group along with his relatives can hold up to 10% of the total voting equity shares of the holding company.
1993: New banks had to lay down its loan policy and make prudential norms covering related party transactions.
2001: New banks are not allowed to lend to any entity belonging to promoter group.
2013: Neither the holding company nor the bank is allowed to lend or invest in any entity belonging to the promoter group.
1993: Minimum paid-up capital for banks was fixed at Rs.100crore.
2001: Initial minimum paid-up capital was fixed at Rs.200crore.Banks were required to increase it to Rs.300crores with in three years.
2013: Minimum paid-up capital has been fixed at Rs.500crores.
CAPITAL ADEQUACY RATIO:
1993: Banks had to maintain capital adequacy ratio of at least 8% from the very beginning.
2001: Banks had to maintain capital adequacy ratio of 10% on an on-going basis.
2013: Banks must maintain capital adequacy ratio of 13% for at least 3 years.
1993: Any director of another banking company was not allowed to be a director in the new bank.
2001: The guidelines did not mention any change
2013: At least 50% of the directors of the holding company must be independent. The bank’s board must have a majority of independent directors.
1993: New banks had to get listed on stock exchanges but no deadline was given
2001: The guidelines did not mention any changes in listing requirement.
2013: New banks must get listed with in three years.
1993: New banks were not allowed to set up a subsidiary or mutual fund for at least three years after its establishment.
2001: New banks were not allowed to set up a subsidiary or mutual fund for at least three years after commencing business.
2013: Holding company is not permitted to set up any new financial services entity for at least three years
1993: Preference was given to those who proposed to have headquarters in centres that do not have headquarters of other banks.
2001: New banks were allowed to set up headquarters in any location in India but at least 25% of their branches had to be in rural and semi urban centres.
2013: At least 25% of new bank’s branches must be in unbanked rural centres.
PRIORITY SECTOR TARGET:
1993: Some relaxations were allowed in meeting priority sector targets in the first three year.
2001: New banks had to meet priority sector lending target of 40% of net bank credit as applicable to other domestic banks.
2013: New banks have to meet priority sector targets and build priority sector lending portfolio after commencing operations.
Above data has been taken from Business standard paper.