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Clarifications to Queries on Guidelines for Licensing of New Banks in the Private Sector
A. (i) & (ii) No. It would not be possible to list the NOFHC as it would have to be wholly owned by the Promoters / Promoter Group. Further, any change in shareholding (by the Promoter Group) within the NOFHC as a result of which a shareholder (within the Promoter Group) acquires 5 per cent or more of the voting equity capital of the NOFHC shall be with the prior approval of RBI. [paragraph 2 (C) (ix) of the guidelines]
No. Shares of the NOFHC shall not be transferred to any entity outside the Promoter Group. Any change in shareholding (by the Promoter Group) with in the NOFHC as a result of which a shareholder acquires 5 per cent or more of the voting equity capital of the NOFHC shall be with the prior approval of RBI. [para 2(C)(ix) of the guidelines ]
No. Shares of the NOFHC shall not be transferred to any entity outside the Promoter Group. Any change in shareholding (by the Promoter Group) with in the NOFHC as a result of which a shareholder acquires 5 per cent or more of the voting equity capital of the NOFHC shall be with the prior approval of RBI. [para 2(C)(ix) of the guidelines ]
A. Yes. The NOFHC shall hold the bank as well as all the other regulated financial services entities of the Group in which a Promoter Group has ‘significant influence’ or ‘control’ (as defined in Accounting Standard 23). [para 2(C)(iii) & (vii)]. However, this does not preclude the bank from having a subsidiary or joint venture or associate where it is legally required or specifically permitted by RBI [para 2(C)(vi) of the guidelines].
A. (i),(ii) & (iii) There could be common directors in the NOFHC and the bank. [para 2(G)(i) of the guidelines]. A director of the NOFHC being also a director on the Board of the bank held by it cannot be considered as independent director of the bank. Whether the other financial entities held by the NOFHC have common independent directors with the NOFHC and the bank will depend upon the circumstances of each case and the rules / regulations of the concerned regulators.
A full time executive of the non-operating holding company cannot be a CEO, MD or Executive Director of either the bank or the NOFHC. As per Section 10(1) (c) of the Banking Regulation Act, 1949, the CEO / MD of the bank has to be in full time employment of the bank. However, a full time executive of the non-operating holding company can be a director of both the NOFHC and the bank but such director will not be treated as an independent director of the bank or the NOFHC.
No. [Paragraph 2 (G) (ii) of the guidelines].
No. [Section 10(1) (c) of the Banking Regulation Act, 1949]
No. [Please see (a) & (b) above]
Yes.
Yes. [Subject to compliance with Banking Regulation Act, 1949 provisions and RBI regulations].
Yes. [Please see (e) above].
A. The stipulation with regard to major customers / suppliers in paragraph 2(G)(iv) of the guidelines, as explained in the footnote therein, refers to 10 per cent or more of the annual purchases or sales of goods and services or both taken together.
A. Foreign shareholding in the new banks, as far the FDI cap is concerned, should be in compliance with paragraph 2 (F) of the guidelines. The manner in which the foreign shareholding in the bank will be calculated would be as per the extant GOI guidelines indicated in the Press Notes and DIPP guidelines/ FEMA regulations, as and when issued.
A. The reserves created under the Companies Act can be considered as part of the 25 per cent of the NOFHC’s annual profits transferred to the Reserve Fund. [Paragraph 2 (H)(i) (d) of the guidelines].
The Promoter / Promoter Group entities / individuals associated with Promoter Group shall hold equity investment in the bank and other financial entities held by it, only through the NOFHC [Paragraph 2 (C) viii of the guidelines]. However, there is no bar on the Promoter Group entities advancing funds (other than equity) to the bank. The Promoter Group entities would have to follow the guidelines / instructions of the respective regulators in order to advance funds to the financial entities held by the NOFHC.
As far as Promoter Group entities placing deposits with the bank or extending advances to it is concerned, the bank shall maintain arm’s length relationship with Promoters / Promoter Group entities [Paragraph 2 (K) (iv) of the guidelines].
The Promoter / Promoter Group entities / individuals associated with Promoter Group shall hold equity investment in the bank and other financial entities held by it, only through the NOFHC [Paragraph 2 (C) viii of the guidelines]. However, there is no bar on the Promoter Group entities advancing funds (other than equity) to the bank. The Promoter Group entities would have to follow the guidelines / instructions of the respective regulators in order to advance funds to the financial entities held by the NOFHC.
As far as Promoter Group entities placing deposits with the bank or extending advances to it is concerned, the bank shall maintain arm’s length relationship with Promoters / Promoter Group entities [Paragraph 2 (K) (iv) of the guidelines].
A. The bank’s credit and investment (other than equity / debt capital instruments of the NOFHC and financial sector entities held under the NOFHC, on which exposure cannot be taken) exposure to financial entities under the NOFHC will be subject to intra group transactions and exposure (ITE) norms [para 2(I)(iii)(c) of the guidelines]. As regards exposure of entities regulated by other financial sector regulators, to the bank and other entities held under NOFHC, such exposures would be in accordance with the rules/regulations of the respective sectoral regulators.
A. At the time of submission of application for the bank licence, the Promoters have to indicate the source of funds. After obtaining the in-principle approval from RBI, the NOFHC may be incorporated and the capital may be mobilised, as required within 18 months from the date of in principle approval and before the commencement of banking business, whichever is earlier.
The assessment of the ‘financial soundness’ and ‘successful track record’ is a matter of judgment, and will have to be determined both on quantitative and qualitative basis; and no specific yardstick/criteria can be spelt out. In making this judgment, consideration will also have to be given to information obtained from the regulators, and enforcement and investigative agencies like Income Tax, CBI, Enforcement Directorate, etc. wherever considered appropriate. Further, the applications received will be subjected to a multi-layered evaluation process, including the High Level Advisory Committee (HLAC). [Paragraph 2(B) of the guidelines]
The assessment of the ‘financial soundness’ and ‘successful track record’ is a matter of judgment, and will have to be determined both on quantitative and qualitative basis; and no specific yardstick/criteria can be spelt out. In making this judgment, consideration will also have to be given to information obtained from the regulators, and enforcement and investigative agencies like Income Tax, CBI, Enforcement Directorate, etc. wherever considered appropriate. Further, the applications received will be subjected to a multi-layered evaluation process, including the High Level Advisory Committee (HLAC). [Paragraph 2(B) of the guidelines]
A. For applying the yardstick / criteria of ‘financial soundness’ and ‘successful track record’, RBI would consider all the businesses / activities of the Promoters / Promoter Group as considered appropriate. [Paragraph 2(B) of the guidelines]
A. The ‘Fit and Proper criteria’, as stipulated at paragraph 2(A) & (B) of the guidelines will be determined based upon the past record and the future plan. No threshold has been prescribed for business misaligned with the banking model.
A. The requirement of the NOFHC is for both financial groups and for corporate groups having a mix of both non–financial and financial services businesses. [Paragraph 2 (C) of the guidelines]
A. The provisions of para 2 (C) (ii) of the guidelines will not apply to entities in the public sector. All the other provisions of the guidelines will apply to the entities in the public sector that promote the NOFHC / bank.
A. Two or more different Promoter groups cannot jointly promote a bank. The NOFHC setting up a bank has to be wholly-owned by a single Promoter Group. Entities other than the Promoters / Promoter Group can hold voting shares in the bank subject to the limitations indicated in Paragraph 2 (K) (ii) and (iii) of the guidelines.
The corporate structure of the NOFHC as given in paragraphs 2 (C) (i), (ii) & (iii) will have to be fully met. The requirement is that the NOFHC has to be wholly owned by the Promoters/Promoter Group. Further, at least 51 percent of the voting equity shares of the NOFHC have to be held by companies in the Promoter Group in which public hold not less than 51 percent of the voting equity of those companies. [Paragraph 2 (C) (i) & (ii) of the guidelines]
If an existing Promoter Group company including a core investment company of the Group satisfies the above criteria, it can be the NOFHC.
The corporate structure of the NOFHC as given in paragraphs 2 (C) (i), (ii) & (iii) will have to be fully met. The requirement is that the NOFHC has to be wholly owned by the Promoters/Promoter Group. Further, at least 51 percent of the voting equity shares of the NOFHC have to be held by companies in the Promoter Group in which public hold not less than 51 percent of the voting equity of those companies. [Paragraph 2 (C) (i) & (ii) of the guidelines]
If an existing Promoter Group company including a core investment company of the Group satisfies the above criteria, it can be the NOFHC.
A. All the shareholders mentioned above will be treated as ‘public’ shareholders in both unlisted and listed entities, provided that no individual shareholder along with his relatives (as defined in Section 6 of the Companies Act, 1956) and entities in which he and/or his relatives hold not less than 50 per cent of the voting equity shares, or acting in concert with other shareholders exercises ‘significant influence’ or ‘control’ (as defined in Accounting Standard 23) over the company. [Paragraph 2(C)(ii)(b) of the guidelines]
A. Companies belonging to the Promoter Group in which the public shareholding is not less than 51 per cent must hold not less than 51 per cent of the voting equity shares of the NOFHC. These companies can be listed or unlisted, but in either case, ‘public shareholding’ requires that no person along with his relatives (as defined in Section 6 of the Companies Act, 1956) and entities in which he and/or his relatives hold not less than 50 per cent of the voting equity shares, or acting in concert with other shareholders exercises ‘significant influence’ or ‘control’ (as defined in Accounting Standard 23) over the company. [Paragraph 2(C)(ii)(b) of the guidelines]
A. The requirement is that the NOFHC shall hold the bank as well as all the other existing regulated financial services entities of the Group in which the Promoter Group has ‘significant influence’ or ‘control’ (as defined in Accounting Standard 23). [Paragraph 2(C)(iii) & (vii) of the guidelines]. If the entity in the Promoter Group carrying out regulated financial services activity discontinues such activity it will have to be necessarily outside the purview of the NOFHC. However, it has to discontinue the regulated financial sector activity within a period of 18 months from the date of grant of in-principle approval to set up the bank or before the date of issue of licence, whichever is earlier.
A. (i)A foreign subsidiary can be set up by a financial services entity already under the NOFHC framework provided the setting up of such an entity is necessary under the regulation in that foreign jurisdiction.
(ii) The setting up of a new entity under the NOFHC as a part of the restructuring of the business of the Promoter group would be permitted subject to compliance with the guidelines at paragraph 2C (vii) of the guidelines.
(iii) A new financial services entity can be set up under the NOFHC if required by a specific regulatory requirement.
Prior permission of the RBI will be necessary for setting up of such new entities, under the NOFHC.
A. Shares of the NOFHC shall not be transferred to any entity outside the Promoter Group. Any change in shareholding (by the Promoter Group) within the NOFHC as a result of which a shareholder acquires 5 per cent or more of the voting equity capital of the NOFHC shall be with the prior approval of RBI. [Paragraph 2 (C) (ix) of the guidelines]
RBI approval will be required for any acquisitions / transfers of voting equity capital resulting in shareholding of 5 per cent or above by an individual / entity / group / Persons acting in concert.
No. Shareholding in Promoter Group entity holding shares in NOFHC will not be treated as ‘indirect’ shareholding in the bank. It may be mentioned here that the Promoters / Promoter Group entities / individuals associated with Promoter Group shall hold equity investment in the bank and other financial entities held by the NOFHC, only through the NOFHC [Paragraph 2 (C) (viii) of the guidelines]
No. Shareholding in Promoter Group entity holding shares in NOFHC will not be treated as ‘indirect’ shareholding in the bank. It may be mentioned here that the Promoters / Promoter Group entities / individuals associated with Promoter Group shall hold equity investment in the bank and other financial entities held by the NOFHC, only through the NOFHC [Paragraph 2 (C) (viii) of the guidelines]
A. All regulated financial sector entities in which a Promoter Group has significant influence or control (as defined in Accounting Standard 23) will be held under the NOFHC, including the overseas financial entities. However, this would not preclude the bank or any other financial services entity held under the NOFHC from having a subsidiary or joint venture or associate where it is legally required or specifically permitted by RBI and other financial sector regulators. [Paragraph 2 (C) (iii) of the guidelines]
A. The requirement is that the NOFHC has to be wholly owned by the Promoters/Promoter Group. [Paragraph 2 (C) (i) of the guidelines] Further, at least 51 percent of the voting equity shares of the NOFHC have to be held by companies in the Promoter Group in which public hold not less than 51 percent of the voting equity of those companies. [Paragraph 2(C)(i) & (ii) of the guidelines]
Therefore, the listed NBFC cannot be converted into an NOFHC and promote the bank. No exemption can be granted for the purpose.
A. The NOFHC will be required to hold only regulated financial services entities. The bank will be permitted to have a subsidiary or joint venture or associate, only where it is legally required or specifically permitted by RBI [Paragraph 2(C)(vi) of the guidelines]. Banks however, are not permitted to have staffing subsidiaries.
A. The Promoters/ Promoter Group would be permitted to set up a bank only through a wholly owned NOFHC as per the corporate structure envisaged in paragraph 2(C) of the guidelines. The NOFHC shall hold the bank as well as all the other financial services entities of the Group regulated by RBI or other financial sector regulators in which the Promoters/ Promoter Group have ‘significant influence’ or ‘control’ (as defined in Accounting Standard 23) [Paragraph 2(C)(iii) of the guidelines]. Further, the general principle is that no financial services entity held by the NOFHC would be allowed to engage in any activity that a bank is permitted to undertake departmentally [Paragraph 2(C)(iv) of the guidelines]. It is clarified that all lending activities in the group must be conducted from inside the bank.
If the FI is a private sector entity, then it has to comply with the corporate structure prescribed at paragraph 2(C)(ii) of the guidelines. If the FI is a public sector entity, provisions of the paragraph 2(C)(ii) of the guidelines will not be applicable, though the entity has to set up a NOFHC for holding the bank. In either case, the activities that can be conducted by a bank have to be transferred to the bank and the regulated financial services activities which a bank cannot undertake have to be transferred to a separate subsidiary or subsidiaries under the NOFHC.[para 2 (C) (iii) of the guidelines]
If the FI is a private sector entity, then it has to comply with the corporate structure prescribed at paragraph 2(C)(ii) of the guidelines. If the FI is a public sector entity, provisions of the paragraph 2(C)(ii) of the guidelines will not be applicable, though the entity has to set up a NOFHC for holding the bank. In either case, the activities that can be conducted by a bank have to be transferred to the bank and the regulated financial services activities which a bank cannot undertake have to be transferred to a separate subsidiary or subsidiaries under the NOFHC.[para 2 (C) (iii) of the guidelines]
If the FI is a private sector entity, then it has to comply with the corporate structure prescribed at paragraph 2(C)(ii) of the guidelines. If the FI is a public sector entity, provisions of the paragraph 2(C)(ii) of the guidelines will not be applicable, though the entity has to set up a NOFHC for holding the bank. In either case, the activities that can be conducted by a bank have to be transferred to the bank and the regulated financial services activities which a bank cannot undertake have to be transferred to a separate subsidiary or subsidiaries under the NOFHC.[para 2 (C) (iii) of the guidelines]
If the FI is a private sector entity, then it has to comply with the corporate structure prescribed at paragraph 2(C)(ii) of the guidelines. If the FI is a public sector entity, provisions of the paragraph 2(C)(ii) of the guidelines will not be applicable, though the entity has to set up a NOFHC for holding the bank. In either case, the activities that can be conducted by a bank have to be transferred to the bank and the regulated financial services activities which a bank cannot undertake have to be transferred to a separate subsidiary or subsidiaries under the NOFHC.[para 2 (C) (iii) of the guidelines]
The shares of NOFHC can be held by individuals, corporate entities and companies belonging to the Promoter Group. A trust does not fall under either of these categories. Therefore, a public charitable trust or an employee welfare trust cannot hold voting equity shares directly in the NOFHC but can hold indirectly through a company which holds equity shares of the NOFHC. If the Promoters have control over the trust, the trusts will not be treated as ‘public’ for the purpose of computing ‘public shareholding’ in companies which would hold not less than 51 per cent of the voting equity of the NOFHC. [Paragraph 2(C)(ii)(b) of the guidelines]
The shares of NOFHC can be held by individuals, corporate entities and companies belonging to the Promoter Group. A trust does not fall under either of these categories. Therefore, a public charitable trust or an employee welfare trust cannot hold voting equity shares directly in the NOFHC but can hold indirectly through a company which holds equity shares of the NOFHC. If the Promoters have control over the trust, the trusts will not be treated as ‘public’ for the purpose of computing ‘public shareholding’ in companies which would hold not less than 51 per cent of the voting equity of the NOFHC. [Paragraph 2(C)(ii)(b) of the guidelines]
The shares of NOFHC can be held by individuals, corporate entities and companies belonging to the Promoter Group. A trust does not fall under either of these categories. Therefore, a public charitable trust or an employee welfare trust cannot hold voting equity shares directly in the NOFHC but can hold indirectly through a company which holds equity shares of the NOFHC. If the Promoters have control over the trust, the trusts will not be treated as ‘public’ for the purpose of computing ‘public shareholding’ in companies which would hold not less than 51 per cent of the voting equity of the NOFHC. [Paragraph 2(C)(ii)(b) of the guidelines]
A CIC of the Promoter Group will be eligible to hold the voting equity shares of NOFHC. Alternately, a CIC of the Promoter Group may also become a NOFHC. However, under both the options, the corporate structure of the NOFHC must comply with requirements at para 2 (C) of the guidelines, and the new bank and the regulated financial sector entities in which Promoter Groups have ‘significant influence’ and ‘control’ (as defined in Accounting Standard 23) have to be held under the NOFHC. [Paragraph 2(C)(iii) & (vii) of the guidelines]
A CIC of the Promoter Group will be eligible to hold the voting equity shares of NOFHC. Alternately, a CIC of the Promoter Group may also become a NOFHC. However, under both the options, the corporate structure of the NOFHC must comply with requirements at para 2 (C) of the guidelines, and the new bank and the regulated financial sector entities in which Promoter Groups have ‘significant influence’ and ‘control’ (as defined in Accounting Standard 23) have to be held under the NOFHC. [Paragraph 2(C)(iii) & (vii) of the guidelines]
A. Post setting up the bank, if the promoters wish to enter into new financial business such as insurance, asset management, they have to set up new subsidiaries under the NOFHC; not under the bank. This would not preclude the bank from setting up a subsidiary, if there is a legal requirement or requirement of the concerned financial sector regulator, subject to RBI approval. However, the NOFHC shall not be permitted to set up any new financial services entity for at least three years from the date of commencement of its business. [para 2(C)(vi) of the guidelines]
A. The NOFHC shall hold the bank as well as other financial services entities of the Promoter Group regulated by RBI or other financial sector regulators [para 2(C)(iii) of the guidelines]. Accordingly, the NOFHC will replace bank/NBFC as sponsor of IDF and contribute a minimum equity of 30 percent and maximum equity of 49 percent of the IDF-NBFC. (Please refer RBI circulars DBOD.FSD BC No 57/24.01.006 dated November 21, 2011 and DNBS. PD. CC. No 249/03.02.089 dated November 21, 2011).
A. (a & b) Since the NOFHC shall hold the bank as well as other financial services entities of the Promoter Group, regulated by RBI or other financial sector regulators [Paragraph 2 (C) (iii) of the guidelines], the bank held under NOFHC will not be permitted to hold the equity shares of an Asset Finance Company (AFC) held under the same NOFHC. Therefore, the bank cannot have 50 per cent equity investment in Company A, unless required by law or specially permitted by RBI and concerned financial sector regulator. Subject to the above, the investment in Company A has to be held by the NOFHC.
A. Yes, all regulated financial services activities, in which a Promoter Group has ‘significant influence’ or ‘control’ (as defined in Accounting Standard 23), whether presently regulated or regulated in the future, will need to be under the NOFHC, when so regulated. [Paragraph 2(C)(vii) of the guidelines]
A. The assets and liabilities for the purpose of transfer from one entity to another under restructuring of the existing business may be valued as per the relevant provisions of the applicable laws.
A. No. The restriction on setting up of new financial services entity within the first three years would not apply to restructuring of the existing business / demergers or any other restructuring of existing business mandated by the sectoral regulators. This will have to be undertaken with RBI’s approval.
A. The public shareholders (i.e. other than the Promoters/Promoter Group entities/individuals associated with the Promoter Group) of the company promoting the NOFHC are permitted to hold equity investments in the bank and other financial entities held by the NOFHC directly. [Paragraph 2(C)(viii) of the guidelines]
For the purpose of ensuring that minimum 51 per cent voting equity shareholding in the NOFHC are held by the companies in which public hold not less than 51 per cent, any convertible instruments held by the promoters, whether compulsorily or optionally convertible into voting equity shares, will be considered as voting equity shares.
For the purpose of ensuring that minimum 51 per cent voting equity shareholding in the NOFHC are held by the companies in which public hold not less than 51 per cent, any convertible instruments held by the promoters, whether compulsorily or optionally convertible into voting equity shares, will be considered as voting equity shares.
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