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Clarifications to Queries on Guidelines for Licensing of New Banks in the Private Sector

Q.72. Whether an existing Non-operating listed Holding company, with more than 51 percent public shareholding, will be eligible to promote a Non-Operative Financial Holding Company (NOFHC)? +

A. Yes. An existing non-operating listed holding company, with more than 51 percent public shareholding, will be eligible to promote a Non-Operative Financial Holding Company (NOFHC). [para 2 (C) (ii) (b) and 2 (C) (iii) of the guidelines]

Q.73. Will a Non-operating holding company, being a promoter of NOFHC and holding investments in unregulated financial sector entities and non-financial sector entities, would be required to be registered as a Core Investment Company with the RBI? +

A. A non operating holding company being a promoter of NOFHC and holding investments in unregulated financial sector entities and non financial sector entities will be required to be registered as a CIC with RBI if it meets the criteria laid down in para 2 and 3 (h) of Notification No DNBS.PD. 219/CGM(US)-2011 dated January 05, 2011 regarding Regulatory Framework for Core Investment Companies.

Q.74. Can the NOFHC hold physical assets belonging to the Group and charge for them on an arm’s length basis? Similarly, since unregulated activities cannot be held by the NOFHC, we assume that the holding company above the NOFHC can, through a subsidiary, hold related businesses such as technology services or banking correspondent services or distribution services. Is this correct? +

A. NOFHC, being a non-operative financial holding company, cannot hold physical assets belonging to the Group and charge for them on an arm’s length basis. A holding company of the Promoter Group, which holds the NOFHC can undertake related businesses such as technology services or banking correspondent services or distribution services on its own, or through a subsidiary. If the non-operative holding company is a CIC or NBFC, the relevant regulations will be applicable.

Q.75. Can an existing non-operating listed holding company, in which the public shareholding exceeds 51 percent and which is proposed to be registered as a CIC, be allowed to operate as the NOFHC? +

A. No. An existing non-operating listed holding company, with more than 51 per cent public shareholding cannot operate as the NOFHC as the NOFHC has to be wholly-owned by the Promoter / Promoter Group. The above cited example does not meet this criteria as the non-operating listed holding company has equity shareholding from non-promoters/promoter group entities. However, this existing non-operative listed holding company in which public shareholding exceeds 51 per cent can promote a NOFHC.

A non operating holding company being a promoter of NOFHC will be required to be registered as a CIC with RBI if it meets the stipulated criteria.

If the non operating holding company does not meet the criteria for being defined as a Core Investment Company but is an NBFC (Investment Company) it will be required to be registered with RBI as NBFC(Investment Company).

Q.76. In many Industrial Groups, the Group investments in non financial Group companies are held through an investment company (SPV/CIC). Since NOFHC is not permitted to hold / invest in non financial entities belonging to the Group, we presume that the requirement of bringing such SPV/CIC below NOFHC would not be applicable. The presumption is made also because it is impractical / economically inefficient / strategically imprudent, for the Industrial Group to house all these Group investments in an Operating Company. +

A. For the purpose of these guidelines, the investment company (SPV/CIC) that holds shares only in non-financial companies of the Promoter Group would not be considered as a financial services company and would be held outside the purview of the NOFHC. [para 2 (C) (iii) of the guidelines]

Q.77. Paragraph 2(C)(iii) also states that only non-financial services companies / entities and non-operative financial holding company in the Group and individuals belonging to the Promoter Group will be allowed to hold shares in the NOFHC. Could you clarify how and the circumstances in which a non-operative financial holding company could be a shareholder of a NOFHC? +

A. A non-operative financial holding company is a company which has no operational activities and holds the non-financial sector companies of the Promoter Group and which has no subsidiaries, joint venture or associate or other controlled entities in the financial sector except investments in the NOFHC. Such company can hold voting equity shares in the NOFHC in accordance with Paragraph 2 (C) (ii) and (iii) of the guidelines. The said holding company can hold upto 100 per cent of the voting equity of the NOFHC, if it has public shareholding of not less than 51 per cent. [para 2 (C)(ii)(b) of the guidelines].

Q.78. Could an NOFHC undertake services in the nature of advisory services which are unregulated by any regulator; advisory services which are regulated by SEBI or any other financial services regulator and provide infrastructure (e.g. office space, amenities etc) and related services to entities held by it or otherwise, and receive considerations for the same? Is lending to or investing in entities that are held under the NOFHC are the only financial activity that the NOFHC may undertake? +

A. NOFHC cannot provide any advisory services to any entity both within the Group and outside the Group. The NOFHC can make investment in bank deposits, money market instruments, government securities and actively traded bonds and debentures besides lending to or investing in entities that are held under it. [para 2(H)(i)(c) of the guidelines]

Q.79. (i) A promoter group that meets clause C (ii) (b) wherein 100% per cent of its voting equity shares are held by the public. It is important to clarify that the promoter group does not have any individual Promoter or relatives of Promoter at all and therefore is a completely public and Fl owned corporate entity (ii) A listed NOFHC held by the promoter (above stated publicly held corporate) and has direct public holding. The board of the NOFHC consists of 8 independent directors, 1 promoter nominee and ’ employees. We believe this structure meets RBI's intent on the NOFHC which is effectively 100% owned by the public/Fl (directly or indirectly), thereby creating the most transparently held NOFHC structure and a ring-fenced NOFHC with almost 80% independent directors on the Board ensuring governance of highest order. +

A. (a) It is not necessary that there has to be an individual promoter. The company wherein 100% of voting equity shares are held by the public can set up the NOFHC and hold to the extent of 100% of the voting equity shares of the NOFHC if such a company is a non-financial services company or a non-operating financial holding company in the group. Further, the company itself will be deemed to be the Promoter and all the provisions of the guidelines applicable to the Promoter and the Promoter Group will apply to it.

(b) The listed company cannot be the NOFHC. It will need to form a NOFHC which is wholly owned by it. The number of independent Directors on the Board of the NOFHC should be in compliance with the provisions of paragraph 2 (G) (iv) of the guidelines.

Q.80. Certain core investment companies are set up or may be set up in the future, purely as investment vehicles in order to hold the promoter investments in other companies. While these are not financial services companies, they are regulated by the RBI. Would these companies be included under clause 2 C (iii) above? +

A. For the purpose of these guidelines, a non-operative holding company that holds shares only in non-financial companies of the Promoter Group would not be considered as a financial services company and would be held outside the purview of the NOFHC.

Q.81. Please clarify that promoter group entities, which hold investments in group companies or investments in normal course of business, are not required to come under the NOFHC and that such promoter group entities can hold shares in the NOFHC +

A. Promoter Group entities, which hold investments in group companies or investments in the normal course of business, are not required to come under the NOFHC. They can hold shares in the NOFHC, provided the conditions stipulated in para 2(C) (ii) & (iii) of the guidelines are met.