New FAQ Page 2 - ಆರ್ಬಿಐ - Reserve Bank of India
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Clarifications to Queries on Guidelines for Licensing of New Banks in the Private Sector
A. Activities such as credit cards, primary dealer, leasing, hire purchase, factoring etc., can be conducted by a bank departmentally or through a separate entity or entities outside the bank. If such an activity is to be carried through a separate entity, then it should be carried on by a subsidiary, joint venture or associate of the NOFHC, and not of the bank, unless it is legally required or specifically permitted by RBI. [para 2 (C) (iv) of the guidelines].
A. As per the extant instructions, prior permission of RBI is necessary for the banks to invest in the equity of subsidiaries and financial services entities. Accordingly, banks would require RBI’s approval for setting up subsidiaries / joint ventures / associates for conducting activities permitted to banks under Section 6 of the BR Act, 1949. The general principle in this regard is that para-banking activities, such as credit cards, primary dealer, leasing, hire purchase, factoring etc., can be conducted either inside the bank departmentally or outside the bank through subsidiary/ joint venture /associate. Activities such as insurance, stock broking, asset management, asset reconstruction, venture capital funding and infrastructure financing through Infrastructure Development Fund (IDF) sponsored by the bank can be undertaken only outside the bank. Lending activities must be conducted from inside the bank. However, other regulated financial servicesentities (excluding entities engaged in credit rating and commodity broking) in which the Promoter/Promoter Group has ‘significant influence’ or ‘control’ (as defined in Accounting Standard 23) have to be held under the NOFHC and not under the bank unless it is legally required or specifically permitted by RBI. [para 2 (C) (iv) of the guidelines].
A. In the normal course, a bank held under the NOFHC will not be permitted to have subsidiaries. A subsidiary of the bank can be set up only where it is legally required or specifically permitted by RBI [para 2(C) (vi) of the guidelines]. FDI investments in the subsidiary of the bank or in the financial services entities held under the NOFHC would be as per the DIPP guidelines of Government of India/Notifications issued under FEMA.
A. Setting-up would mean incorporating a new entity or acquiring shares in an existing entity in which the Promoter Group will have ‘significant influence’ or ‘control’ (as defined in Accounting Standard 23) and which carries on regulated financial services business whereby such entities would be required to be a subsidiary, joint venture or associate of the NOFHC. [para 2 (C) (vi) of the guidelines]
A. Normally the bank will not be permitted to set up a subsidiary / joint venture under it. However, a bank may be permitted to set-up a subsidiary / joint venture under it, where it is legally required or specifically permitted by RBI (For example, a banking subsidiary for carrying on the business of banking exclusively outside India). [para 2 (C) (vi) of the guidelines]
A. Promoters/Promoter Groups will not be permitted to set up any new financial services entity within three years from the date of commencement of business of the NOFHC, even if such intention is mentioned in the applications. [para 2 (C) (vi) of the guidelines]
A. Yes. The financial services entities of the Promoter Group which are not regulated by RBI or any other financial sector regulator cannot be brought under the NOFHC structure. [para 2 (C) (iii) of the guidelines]
A. Yes, subject to regulations relating to rights issues. The shareholding of the NOFHC will be a minimum of 40 per cent of the paid up voting equity capital of the bank which shall be locked in for a period of five years from the date of commencement of the business of the bank. The shareholding in excess of 40 per cent of the total paid up voting equity capital should be brought down to 40 per cent within three years from the date of commencement of business of the bank. [para 2 (D) (ii) and (iii) of the guidelines]
A. There could be common directors in the NOFHC and the bank. [para 2(G)(i) of the guidelines]. A director of the NOFHC cannot be considered as independent director of the bank. The common directorship between the NOFHC and other regulated financial services entities would be as per the regulations of the sectoral regulators concerned. [para 2 G (iv) of the guidelines]
A. No. The bank cannot be incorporated without obtaining ‘in-principle approval’ from the Reserve Bank. The bank will be incorporated as a public limited company.
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