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.

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.

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.

A. The policy discussion paper mentioned in the guidelines relates to the banking structure of the country. The policy discussion paper mentioned in the guidelines will relate to the banking structure in the country and will be applicable both to existing and new banks. The present policy guidelines for licensing of new banks in the private sector will not undergo any change due to the policy discussion paper on banking structure in India.

A. The Promoters/Promoter Group entity setting up the NOFHC can have minority foreign shareholding provided these entities are ‘owned and controlled by residents’ as per para 2(A)(i) of the guidelines. The guidelines do not envisage any direct holding by non-promoters/promoter group entities including foreign investors in the NOFHC. Further, the promoters will have to comply with stipulations at–para 2 (C) (i) and (ii) of the guidelines.

A. The guidelines provide that a NOFHC should be wholly owned by the Promoters/Promoter Group i.e., by individuals belonging to the promoter group and entities in the promoter group in which the Promoter/Promoter Group are in effective control. Within such shareholding, not less than 51 percent of the voting equity shareholding of the NOFHC must be held by companies in which the public hold not less than 51 percent of the voting equity shareholding. The remaining 49 per cent of voting equity shareholding in such publicly held companies [para 2(C)(ii)(b) of the guidelines] will be held by promoter group individuals/ entities who have ‘significant influence’ and ‘control’ (as defined in Accounting Standard 23) over such companies.

A. Two NOFHCs are not envisaged. Only one NOFHC shall hold the bank as well as all the other regulated financial services entities of the Group in which the Promoter Group has ‘significant influence’ or ‘control’(as defined in Accounting Standard 23). [para 2 (C) (iii) & (vii) of the guidelines]

A. No. Paragraph 2 (C) (viii) stipulates that 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. Further, paragraph 2 (I) (iv) (b) of the guidelines indicate that the financial entities held by NOFHC shall not make investment in the equity / debt capital instruments amongst themselves. Therefore, an NBFC held by the NOFHC cannot hold shares in ‘he bank.

A. Para 2 (L) of the guidelines will be applicable both to promoter converting the NBFC into a bank or promoting a bank.

A. With a view to enhancing financial inclusion, the conditions relating to the branch network are specifically prescribed at 25 percent for unbanked rural centres. Further, this norm has been extended to the existing banks also and they are required to comply with this stipulation while opening new branches.

As regards the foreign investment, it is capped at 49 percent for the initial period of 5 years to ensure that domestic banks are established in the private sector. However, after expiry of 5 years, the aggregate foreign shareholding in the bank would be allowed as per the extant FDI policy of the Government.

The reason for not permitting the NOFHC to set up any new financial services entity for at least three years from the date of commencement of the NOFHC is on account of the fact that it is necessary that the newly set up bank gets on sound footing before the NOFHC diversifies into other financial sector business. The existing regulated financial sector business would, however, continue under the NOFHC.

The limit of 10 per cent applies to an individual’s own shareholding along with the shares held by his relatives (as defined in Section 6 of the Companies Act, 1956) and the entities in which he and / or his relatives hold not less than 50 per cent of voting equity shares [para 2 (C) (ii) (a) of the guidelines].If there are two or more individuals who are part of the Promoter Group and are not relatives of each other, the limit would apply individually, and need not be aggregated. However, all such individuals cannot hold more than 49 per cent of the voting equity shares of the NOFHC.

The limit of 10 per cent applies to an individual’s own shareholding along with the shares held by his relatives (as defined in Section 6 of the Companies Act, 1956) and the entities in which he and / or his relatives hold not less than 50 per cent of voting equity shares [para 2 (C) (ii) (a) of the guidelines].If there are two or more individuals who are part of the Promoter Group and are not relatives of each other, the limit would apply individually, and need not be aggregated. However, all such individuals cannot hold more than 49 per cent of the voting equity shares of the NOFHC.

A. Only the voting equity share capital will be reckoned for the purpose of compliance with the guidelines on capital structure of the NOFHC, the minimum capital requirement for the new bank and shareholding by NOFHC in the new bank. The non-voting equity shares are out of the purview of these guidelines. [ para 2 (C)(ii) and para 2 (D) (i) to (v) of the guidelines ]

A. The Promoter Group includes a “Promoter” as per the definition of the Promoter Group given in Annex I to the guidelines and a Promoter is a “person” who satisfies the definition given in Annex I to the guidelines. As per para II(vi) of Annex I, Promoter Group includes entities sharing common brand names (please see this clause for details).All the 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. [ para 2(C)(vii) of the guidelines ]

A. (156to158) A company in which public holds 51 per cent of the total voting equity shares need not necessarily be listed. The term ‘public’ refers to all the shareholders other than those belonging to Promoter/Promoter Group (as defined in Annex I to the guidelines).

For the purpose of these guidelines, ‘public shareholding’ implies 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, by virtue of his shareholding or otherwise, exercises ‘significant influence’ or ‘control’ (as defined in Accounting Standard 23) over the company. [para 2 (C) (ii) of the guidelines]

A company in which public holds 51 per cent of the total voting equity shares need not necessarily be listed. The term ‘public’ refers to all the shareholders other than those belonging to Promoter/Promoter Group (as defined in Annex I to the guidelines). For the purpose of these guidelines, ‘public shareholding’ implies 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, by virtue of his shareholding or otherwise, exercises ‘significant influence’ or ‘control’ (as defined in Accounting Standard 23) over the company. [para 2 (C) (ii) of the guidelines]

A company in which public holds 51 per cent of the total voting equity shares need not necessarily be listed. The term ‘public’ refers to all the shareholders other than those belonging to Promoter/Promoter Group (as defined in Annex I to the guidelines). For the purpose of these guidelines, ‘public shareholding’ implies 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, by virtue of his shareholding or otherwise, exercises ‘significant influence’ or ‘control’ (as defined in Accounting Standard 23) over the company. [para 2 (C) (ii) of the guidelines]

A. The requirement of 51 per cent of public shareholding will apply to the companies in the Promoter Group, which are shareholders of NOFHC and such companies must collectively hold not less than 51 per cent of the voting equity shares of the NOFHC.

A. Entities / groups in the private sector that are ‘owned and controlled by residents’ [as defined in Department of Industrial Policy and Promotion (DIPP) Press Note 2, 3 and 4 of 2009 / FEMA Regulations as amended from time to time] shall be eligible to promote a bank through a wholly-owned Non-Operative Financial Holding Company (NOFHC) [para 2(A) (i) of the guidelines]. Therefore, the NOFHC should be owned by individuals belonging to the Promoter Group and entities in the promoter group in which the promoter/promoter group are in effective control. The Promoters should ensure that ownership and effective control of the promoter entity remains with the persons resident in India /resident entities, at all times[para 2 (A)(i) of the guidelines].There is a mechanism in place to monitor foreign shareholding in entities having sectoral caps for such holdings.

A. The regulated financial services entities in the promoter group held by the NOFHC will not be allowed to make overseas investment in entities whereby such entities would become a subsidiary, joint venture or associate of the regulated financial services entities, unless such investments are legally required or specifically permitted by RBI/ other financial sector regulators and are in accordance with FEMA guidelines. However, NOFHC can make overseas investments subject to FEMA guidelines.

The commodity broking business is not considered to be regulated financial services for the purpose of these guidelines, and entities in the Promoter Group which are carrying on commodity broking business cannot be held under the NOFHC.

The commodity broking business is not considered to be regulated financial services for the purpose of these guidelines, and entities in the Promoter Group which are carrying on commodity broking business cannot be held under the NOFHC.

The general principle for activities that have to be conducted from within the bank and by NBFCs in the group 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 asset management, insurance, stock broking, 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 services entities (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]. Within these principles, the activities that are permitted to be undertaken by the bank, such as loans against shares, have to be undertaken by the bank to the extent permitted, and lending activities that are not permitted to a bank, but are not prohibited to NBFCs, such as promoter financing, loans for purchase of land, etc. would have to be wound up within a period of 18 months from the date of in-principle approval or before commencement of banking business, whichever is earlier.

The general principle for activities that have to be conducted from within the bank and by NBFCs in the group 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 asset management, insurance, stock broking, 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 services entities (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]. Within these principles, the activities that are permitted to be undertaken by the bank, such as loans against shares, have to be undertaken by the bank to the extent permitted, and lending activities that are not permitted to a bank, but are not prohibited to NBFCs, such as promoter financing, loans for purchase of land, etc. would have to be wound up within a period of 18 months from the date of in-principle approval or before commencement of banking business, whichever is earlier.

The general principle for activities that have to be conducted from within the bank and by NBFCs in the group 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 asset management, insurance, stock broking, 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 services entities (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]. Within these principles, the activities that are permitted to be undertaken by the bank, such as loans against shares, have to be undertaken by the bank to the extent permitted, and lending activities that are not permitted to a bank, but are not prohibited to NBFCs, such as promoter financing, loans for purchase of land, etc. would have to be wound up within a period of 18 months from the date of in-principle approval or before commencement of banking business, whichever is earlier.

A. The NOFHC shall be wholly owned by entities/groups in the private sector that are ‘owned and controlled by residents’ [as defined in Department of Industrial Policy and Promotion (DIPP) Press Note 2, 3 and 4 of 2009/ FEMA Regulations as amended from time to time], and also subject to capital structure given at paragraph 2 (C) (ii) (a) and (b) of the guidelines. The level of foreign shareholding in these entities should be at such level that does not make them ‘owned and/or controlled’ by non-residents. FIIs/Foreign Private Equity/Foreign investors cannot hold any voting equity shares in the NOFHC as only companies/ entities in the Promoter Group that are owned and controlled by residents in India are allowed to hold the voting equity shares of the NOFHC. [para 2 (A) (i) and para 2 (C) (i) of the guidelines ] The foreign shareholding allowed at the bank level should satisfy the requirements under paragraph 2 (F) of the guidelines.

A. The 5 percent limit on shareholding by any non-resident shareholder would apply at the bank level. The indirect foreign investments through the Promoter Group companies [owned and controlled by residents – paragraph 2 (A) of the guidelines], which would hold the NOFHC, will not be counted for foreign investments in the bank.

The indirect foreign investments through the Promoter Group companies [owned and controlled by residents – paragraph 2 (A) of the guidelines], which would hold the NOFHC, will not be counted for foreign investments in the bank, as only companies/entities in the Promoter Group that are owned and controlled by resident in India are allowed to hold the voting equity shares of NOFHC. [Paragraph 2 (F) of the guidelines]

The indirect foreign investments through the Promoter Group companies [owned and controlled by residents – paragraph 2 (A) of the guidelines], which would hold the NOFHC, will not be counted for foreign investments in the bank, as only companies/entities in the Promoter Group that are owned and controlled by resident in India are allowed to hold the voting equity shares of NOFHC. [Paragraph 2 (F) of the guidelines]

A. The requirement is that the NOFHC has to be wholly owned by entities/ Groups in the private sector that are ‘owned and controlled by residents’ [ as defined in Department of Industrial Policy and Promotion(DIPP) Press Note 2, 3, and 4 of 2009/FEMA Regulations as amended from time to time]. Therefore OCIs cannot hold shares in the NOFHC.

A. The requirement is that the NOFHC has to be wholly owned by entities/ Groups in the private sector that are ‘owned and controlled by residents’ [ as defined in Department of Industrial Policy and Promotion(DIPP) Press Note 2, 3, and 4 of 2009/FEMA Regulations as amended from time to time]. Therefore PIOs cannot hold shares in the NOFHC.

No single entity or group of related entities, other than the NOFHC, shall have shareholding or control, directly or indirectly, in excess of 10 per cent of the paid-up voting equity capital of the bank [para 2 (K) (iii) of the guidelines].

Any acquisition of shares by persons resident in India or otherwise which will take the aggregate holding of an individual / entity / group to the equivalent of 5 per cent or more of the paid-up voting equity capital of the bank, will require prior approval of RBI [Para 2 (K) (ii) of the guidelines].

A. OCIs/PIOs will be allowed to become Chairman/CEO of the proposed bank provided they are persons resident in India as per Foreign Exchange Management Act, 1999.

A. Yes. The term ‘major supplier and major customer’ will normally have the same meaning (as defined in footnote 4 at page 7 of the guidelines) throughout the guidelines.

A. (i) The general principle for activities that have to be conducted from within the bank and by NBFCs in the group 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 asset management, insurance, stock broking, 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 services entities (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].

The existing business of NBFCs of the Promoter Group setting up/converting into a bank will have to be reorganized accordingly.

(ii) RBI may consider allowing the bank to take over and convert the existing NBFC branches into bank branches only in the Tier 2 to 6 centres. All NBFC branches in Tier 1 centres which would carry out banking business may be permitted to be converted into bank branches and the excess over the entitled number of Tier 1 branches would be adjusted against the future entitlements of the new bank within a maximum period of 3 years from the date of commencement of business by the bank. The branches of the bank and NBFC should be distinct and separate. Erstwhile branches of NBFC, retained and converted into bank branches, cannot conduct businesses of the NBFC.

The new bank should have a minimum voting equity capital of `5 billion. However, where an NBFC is permitted to convert into a bank, it should have a minimum networth of ` 5 billion at all times.[para 2(L)(C) of the guidelines].

The new bank should have a minimum voting equity capital of `5 billion. However, where an NBFC is permitted to convert into a bank, it should have a minimum networth of ` 5 billion at all times.[para 2(L)(C) of the guidelines].

A. The minimum capital required for the bank is `5 billion, and the NOFHC is initially required to have atleast 40% shareholding in the bank. The minimum capital of the NOFHC should be such as to meet the above requirements as well as the requirement of holding prescribed capital in other financial sector entities held by the NOFHC as per the norms laid down by the financial sector regulators.[Paragraph 2 (D) of the guidelines]

The general principle for activities that have to be conducted from within the bank and by NBFCs in the group 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 asset management, insurance, stock broking, 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 services entities (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]. Within these principles, the NBFC converting into the bank is required to divest the activities which the banks are not allowed to undertake departmentally and such activities can be migrated to and conducted from another NBFC/entity. However, lending activities that are not permitted to a bank, or are subject to restrictions, but are not prohibited to NBFCs, such as promoter financing, loans for purchase of land etc. would have to be wound up. This may be completed within a period of 18 months from the date of in-principle approval of before commencement of the banking business, whichever is earlier.

The general principle for activities that have to be conducted from within the bank and by NBFCs in the group 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 asset management, insurance, stock broking, 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 services entities (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]. Within these principles, the NBFC converting into the bank is required to divest the activities which the banks are not allowed to undertake departmentally and such activities can be migrated to and conducted from another NBFC/entity. However, lending activities that are not permitted to a bank, or are subject to restrictions, but are not prohibited to NBFCs, such as promoter financing, loans for purchase of land etc. would have to be wound up. This may be completed within a period of 18 months from the date of in-principle approval of before commencement of the banking business, whichever is earlier.

A. (179 to 181) The general principle for activities that have to be conducted from within the bank and by NBFCs in the group 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 asset management, insurance, stock broking, 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 services entities (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].

Within these principles, the NBFC converting into the bank is required to divest the activities which the banks are not allowed to undertake departmentally and such activities can be migrated to and conducted from another NBFC/entity. However, lending activities that are not permitted to a bank, or are subject to restrictions, but are not prohibited to NBFCs, such as promoter financing, loans for purchase of land etc. would have to be wound up. This may be completed within a period of 18 months from the date of in-principle approval of before commencement of the banking business, whichever is earlier.

A. The entities/individuals belonging to the Promoters/Promoter Groups, which would participate in the voting equity shares of the NOFHC, would have to provide the Memorandum and Articles of Association, financial statements for past ten years and Income Tax returns for last three years, as appropriate, at the time of submission of their application. The last available financial statements in respect of other Group entities, which do not participate in the voting equity shares of the NOFHC will also have to be furnished. The details of the Promoters’ direct and indirect interest in various entities/companies/industries and details of credit/other facilities availed by the Promoters/Promoter Group would be required of all entities. [ para 3 of Annex II to the guidelines]

A. The general principle for activities that have to be conducted from within the bank and by NBFCs in the group 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 asset management, insurance, stock broking, 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 services entities (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]. Within these principles, the activities that are permitted to be undertaken by the bank, such as loans against shares, have to be undertaken by the bank to the extent permitted. Lending activities that are not permitted to a bank or subject to restrictions to a bank cannot be carried out through an NBFC.

A. The transfer of equity holdings by the Promoters/Promoter Group entities in such regulated financial sector entities to the NOFHC, without the transfer of these business of the financial entities to the bank i.e. activities which have to be undertaken by the bank only, will not be in compliance with the provisions at para 2(C) (iv) of the guidelines.

A. (185 & 186)  Consolidated capital funds means the Capital, Reserves and Surplus of the NOFHC determined on the consolidation of its subsidiaries, associates and joint ventures in accordance with the applicable Accounting Standards.

Consolidated capital funds for regulatory purpose means the consolidated regulatory capital of the NOFHC under the regulatory scope of consolidation. (Please refer to the ‘scope of Application’ under Section B of Annex 1 of circular DBOD.No.BP.BC.98 /21.06.201/2011-12 on guidelines on ‘Implementation of Basel III Capital Regulations in India’ dated May 2, 2012 for details on regulatory scope of consolidation. Please also refer to the guidelines for ‘consolidated accounting and other quantitative methods to facilitate consolidated supervision’ contained in circular DBOD.No.BP.BC.72 /21.04.018/2001-02 dated February 25, 2003 in terms of which the NOFHC will have to prepare consolidated financial statements and other consolidated prudential reports.)

This is a cross holding limit in the capital instruments on unconsolidated financial entities which applies on a consolidated basis. The limit ensures that the NOFHC has the continued ability to provide capital support to banking business.

However, since the investment of the NOFHC in the insurance subsidiary is fully deducted from its consolidated capital for prudential purposes such as consolidated capital adequacy, exposure norms etc., the investment of the NOFHC in the capital of its insurance subsidiary is not considered for the purpose of cross holding limit of 10 per cent.