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RBI issues guidelines for on-tap banking licenses

RBIThe Reserve Bank of India has announced new guidelines for entities seeking to set up banks in the country. The guidelines, which are intended to usher in an era of on-tap banking licenses, at the outset, provide impetus to NBFCs to convert themselves into banks. However, RBI has put in restrictions on large industrial houses and government-run companies. Industrial houses can at most have a 10% stake in the new banks, while government companies cannot set up such banks at all. In the earlier dispensation, those wishing to obtain banking licenses had to wait till the central bank announced its intention to invite applications. Now, individuals, private sector companies and NBFCs can apply as and when they wanted and the minimum paid-up capital has been kept at Rs 500 crore with the foreign investment limit pegged at 74%. The guidelines said private sector entities or groups ‘owned and controlled by resident Indians with sound track record of 10 years can apply’. RBI has also said large industrial houses, whose income from non-banking sources are over 40% of total will not be eligible to set up a bank but such entities can pick up 10% stake in banks. Established NBFCs that are controlled by Indian residents and have a successful track record for at least 10 years will also be eligible. However, an NBFC, which is a part of the group where the non-financial business of the group accounts for 40% or more in terms of total assets/in terms of gross income, is not eligible.

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