After the nationalization of the banks in 1969 and 1980s the banking sector has been completely under the control of government. From 1993 to 2001, the private banks that came into being were not sponsored by the bigger industrial/business houses. As a result they failed. The bias against the bigger industrial houses has continued in the reform era as well. However, under the new eligibility criteria for opening new banks in India by private entities in September 2011, allows the bigger industrial houses to come into the playground. RBI had released the final guidelines for obtaining bank license in February, 2013.
Guidelines For Obtaining New Bank License are
Groups in private sector owned and controlled by residents with diversified ownership, sound credentials and successful track record of 10 years.
Those barred by RBI: groups having exposure of even 10% (asset or income) from real estate and broking activities over past 6 years. These sectors are considered to be speculative in nature and misaligned with bank’s requirement.
Corporate structure and Governance
Banks to be set up through wholly owned Non-Operative Financial Holding Company (NOFHC). NOFHC will be registered with the RBI. All financial activities of promoter group will come under NOFHC. As for governance; 50% of the directors under NOFHC should be independent directors.
The minimum capital holding will be Rs. 500 crores. The NOHC will be holding 40% of the capital for 5 years from the date of license. Aggregate non-residential share holding should not be more than 49% in the 1st 5years.
- Should be Realistic and Viable. The model should address how banks hope to achieve financial inclusion.
- 1/4th of the branches of the new banks should be in the un-banked rural areas.
- RBI will have powers to pull up promoters for any deviations.
Listing on Stock Exchanges
The bank should enlist shares in stock exchange within 2 years of Licensing.
Note : These guidelines paved the way for corporate houses like Anil Dhirubhai Ambani Group, Larsen & Toubro, TATA, Mahindra and Mahindra, Life Insurance Corporation and Aditya Birla Group to enter the banking business.
At present, there are 26 Public Sector Banks, 20 Private Sector Banks and 82 Rural Regional Banks ( You can see the list of RRBs, Click here)
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