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Banking licenses: curbs on business houses

rbi1_660_041115053407The new draft guidelines issued by the Reserve Bank of India on new banking licenses stipulate that industrial houses that have 40% or less of their revenues from non-financial activities will not be given such licenses. The guidelines say that large business houses with total assets of Rs 5000 crore and having 60% of their business in financial services can only apply for the license. Meanwhile, professionals and finance companies can get the license provided they can raise a minimum capital of Rs 500 crore. These licenses are for universal banks. Another stipulation in the guidelines is that corporates will not be allowed to hold more than 10% in a bank. While granting new banking licences, RBI will give preference to entities with diversified shareholding. The guidelines also prescribe that promoters’ stake will be locked at 40% for the first five years and the bank will have to be listed within six years. At the end of five years, the promoters’ excess stake has to be lowered to 40%. The stake must be brought down to 30% after 10 years of operations and to 15% after 12 years. While individuals will not have to float a ‘non-operative financial holding company’ to own a bank, business entities must form a holding company where promoters hold a minimum 51% stake. Such a holding company will not be permitted to set up any new financial services entity for at least three years from the date of commencement of business.

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