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RBI clears corporate sector entry into banking

New Delhi, Feb 23 () : Despite the unions paralyzing the banking sector for two days, Reserve Bank of India (RBI) issued final guidelines for entry of corporates to set up new banks. Non-banking finance companies (NBFCs) too can enter. All the new banks will have to operate through a wholly-owned Non-Operative Financial Holding Company (NOFHC).

Not only private sector corporates but even Public sector undertakings are also eligible to apply. Till July 1, the RBI will allow applicants for new licenses.

The eligibility factor is that the promoters or the groups should produce sound financial background, integrity and should have been running their businesses for ten years. The promoters of the new banks should delink their groups from the bank and in no way open the banks they own to have exposure to the promoters of other companies. In short, the promoters cannot give loans from the bank to the other companies they own.

It does not exclude any business house dealing in speculative trade like real estate and brokerage from entering the banking sector. It has further termed speculation as subject to high assets fluctuation. RBI draft had excluded this sector from entering the private banking sectors but later it realized that sound integrity business houses like Tata had group companies dealing with realty.

The promoters must come up with Rs 500 crore as initial minimum paid-up voting equity capital. NOFHC through which it operates should hold 40 per cent of the paid-up voting equity capital. The lock-in period will be five years and in a period of 12 years it can be diluted to 15 per cent. Within three years of the start, the bank has to get listed in the stock market. Foreign investment in the bank cannot be more than 49%. This is for the first five years.

To keep the new banks from being a family-run business, RBI has said that 50 per cent of the director board members of the NOFHC would be independent. Bank should not buy or invest in any share or debt instruments that are owned by the NOFHC. Yet another condition that gives fillip to rural banking is that 25% of the branches should be in rural areas with population less than 10,000. The new banks would function from March-April 2013.