New FAQ Page 2 - आरबीआय - Reserve Bank of India
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Clarifications to Queries on Guidelines for Licensing of New Banks in the Private Sector
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.
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