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

Q.135. Will RBI consider providing on its website, a list of unbanked centres with population less than 9,999? +

A. List of unbanked centres with population less than 9,999 can be obtained from the concerned State Level Bankers Committees (SLBCs) and District Consultative Committees (DCCs) at the time of opening branches.

Q.136. (i) It is our understanding that a widely held, listed NBFC, with no operations, can be the NOHFC that holds a Bank. Please confirm. (ii) It is also our understanding that a widely held listed NBFC, with no operations, and with no Promoter / Promoter Group, can be the NOHFC that holds a Bank. Please confirm. (iii) Please confirm that it would be permissible for the Government of India to own more than 10 percent, but less than 26 percent, of a widely held, listed NOFHC, with no Promoter/Promoter Group, that holds the Bank. (iv) Para 2K(iii) states that "No single entity or group of related entities, other than the NOFHC, shall have shareholding or control, directly or indirectly, in excess of 10 percent of the paid-up voting equity capital of the bank". Our understanding is that it would be permissible if the Government of India were to be the only entity that holds more than 10 percent, but less than 26 percent of the Bank. +

A. (i) to (iii)The NOFHC must be wholly owned by the Promoters/Promoter Group. Therefore, it cannot be listed and accordingly a listed NBFC cannot be a NOFHC.

(iv) The 10 percent stipulation will also apply to the Government of India shareholding in the bank, as these banks would be private sector banks.

Q.137. Para 2A of the Guidelines state that "Entities / Groups in the private sector that are ‘owned and controlled by residents’ as defined in DIPP & FEMA regulations are eligible to promote NOFHC". It is our understanding that a listed company that is deemed today to be a "Foreign Owned Indian Company", can apply for a banking license and is eligible to become the NOFHC that holds the Bank, provided however it becomes an “Indian Company owned and controlled by residents” prior to the commencement of the operations of the Bank, i.e. it becomes compliant with the Guidelines within 12 months of the issuance of the in-principle license. Please confirm. +

A. The NOFHC has to be wholly owned by the Promoters/Promoter Group. Therefore, a listed company cannot be a NOFHC.

At the time of making applications, the Promoters/Promoter Group will have to furnish a road map and methodologies they would adopt to comply with all the requirements of the corporate structure indicated in para 2 (A) and (C) of the guidelines. After the ‘in-principle approval’ is accorded by RBI for setting up of a bank, the Promoters/Promoter Group will have to comply with all the requirements and the proposed bank has to start operations within 18 months from the date of in-principle approval or the date of commencement of operations whichever is earlier.

Q.138. Para 2D(iii) of the Guidelines talks about the minimum voting equity capital requirements for banks and shareholding by NOFHC. It states that "the shareholding by the NOFHC in the bank in excess of 40 percent of the total paid-up voting equity capital shall be brought down to 40 percent within three years from the date of commencement of business of the bank". Keeping the principle of diversified ownership in mind, could you clarify the following two points in particular context of a widely held, listed NOFHC with no Promoter/Promoter Group and with no single entity owning more than 10 percent: (i) Would such an NOFHC be required to dilutes stake in the Bank to 40 percent? (ii) Would the Bank held by such an NOFHC need to be listed? +

A. The Promoters/Promoter Group have to set up a wholly owned NOFHC as per the corporate structure prescribed in para 2(C) of the guidelines. The NOFHC, therefore, cannot be a listed company. The wholly owned NOFHC has to bring down its shareholding in the bank in excess of 40 percent to 40 percent within three years from the date of commencement of the business of the bank. The bank shall get its shares listed in stock exchanges within three years of its commencement of the business.

Q.139. (i) Under DIPP guidelines, if the non-resident shareholding in a company is less than 50 percent, the ‘see through’ clause does not apply for downstream investments. As per Para 2F of the Guidelines for licensing of New Banks in the Private Sector, no non-resident can hold more than 5 percent in the Bank. In a situation where the total foreign shareholding in an NOFHC is less than 50 percent, could a non-resident individual shareholder continue to hold more than 5 percent but less than 10 percent in the NOFHC, since the "see through" clause does not apply? Please clarify. (ii) In the same vein as the above point, in a situation where the NOFHC is holds>50 percent by Indian share holders, does NOFHC holding qualify as Indian ownership considering no "see though". In this context, when the Bank has to be listed and its holding by the NOFHC dilutes 40 percent, can the Bank have up to 49 percent aggregate non-resident shareholding? Please clarify. +

A. (i) The requirement is that the NOFHC has to be wholly owned and controlled by resident. Therefore, non-residents cannot hold shares in the NOFHC.

(ii) The NOFHC being wholly owned by the entities / Groups in the private sector that are ‘owned and controlled by residents’, its shareholdings in the bank would not be counted for non-resident shareholding, and the bank can have an aggregate foreign shareholding of 49 per cent of the paid up voting equity capital for the first five years from the date of licensing. [Paragraph 2 (F) of the guidelines]

Q.140. Para 2C(iii) of the Guidelines states that "The NOHFC shall hold the bank as well as all the other financial services entities of the Group …". Notwithstanding this para, could the NOFHC hold a non-financial services company as a subsidiary, provided however, such a company is a Section 25 Company for the sole purpose of carrying out Corporate Social Responsibility activities? Please clarify. +

A. No, unless permitted by RBI.

Q.141. (i) Whether a Multi-State Cooperative Society is eligible to promote a bank as per the NOFHC? This clarification is sought as “Private Sector” is not defined in the guidelines. (ii) Whether entities registered under the Multi State Cooperative Societies Act wholly owned by Cooperatives with no GOI equity are eligible to be counted as being in Private Sector? +

A: The guidelines do not bar a Multi-State Cooperative Society (MSCS) from being a Promoter. A MSCS can be a public sector entity or private sector entity depending upon the extent of Government control. These guidelines do not cover setting up of private sector banks by cooperative banks or conversion of cooperative banks into commercial banks in the private sector.

Q.142. The proposed guidelines require the Promoter / Promoter Group to set up a Bank only through a wholly owned Non-Operative Financial Holding Company (NOFHC). NOFHC is also required to hold all the other financial services entities of the Group regulated by RBI or other financial services regulators. We seek clarification on the applicability of this provision in the guidelines for joining of two different entities to form the Promoter Group. +

The NOFHC has to be wholly owned by a single Promoter/Promoter Group (as per the definition given in Annex 1 to the guidelines) and the pattern of shareholding would be as per the provisions laid down at par 2(C)(ii) & (iii) of the guidelines. Two or more separate groups cannot combine together to set up a NOFHC.

Q.143. Can two or more unrelated listed entities act as promoters in NOFHC? +

Q.144. Can a Promoter / Promoter group which even though has an existing NBFC, choose to be classified under Para 2 A (i) (promote a bank through a wholly-owned Non-Operative Financial Holding Company (NOFHC)) instead of Para 2 A (ii) (promote a bank or convert the NBFC into bank and transfer permitted activities to the bank), such that there is no requirement of the conditions set out in Para 2 (L) which deals with migration of NBFC business into the bank? +

A. Yes. Promoters/Promoter Group having an existing NBFC can choose to promote a bank through a wholly owned NOFHC. However, the existing business of the NBFC will have to be migrated into the bank in compliance with conditions laid down in para 2 (L) and 2 (C) (iv) of the guidelines.

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