Guidelines set for issuing of licences for new banks

The The Reserve Bank of India (RBI) recently issued guidelines on the licensing of new banks in the private sector and invited applications by 1 July 2013. While the guidelines have been on the anvil since 2010, it is understood that the RBI was keen for certain amendments to be made to the Banking Regulation Act, 1949 – which were brought about by the Banking Laws (Amendment) Act, 2012 – before releasing the guidelines. This article discusses some key features of the guidelines.

Eligibility criteria

All private sector entities that are “owned and controlled by residents” and promoters/promoter groups with an existing non-banking financial company (NBFC) are eligible to apply to the RBI for a licence to establish a bank through a wholly owned non-operative financial holding company (NOFHC). The guidelines also require that a promoter/promoter group must be “fit and proper” in accordance with the criteria prescribed in the guidelines. This entails displaying not just financial soundness and a decade-long track record of business success, but also requires a reputation for integrity.

The NOFHC, a concept introduced in the guidelines and to be governed by a distinct set of (yet to be issued) directions, must be registered as an NBFC with the RBI.

Sawant Singh is a partner, Aditya Bhargava is a senior associate, and Davis Kanjamala is an associate at the Mumbai office of Phoenix Legal.