In its new guidelines, RBI opens bank licences to all

The Reserve Bank of India has opened the window for companies to apply for bank licences. The final guidelines issued on Friday do not debar any class of companies from applying to set up a bank.

This brings the guidelines closer to the finance ministry's position on one of India's biggest financial sector reforms. RBI has, however, reserved the right to set additional criteria to determine the suitablity of applicants, including clearances from the I-T department, CBI and Enforcement Directorate.

It has also set a 49 per cent FDI cap in the banks to be established under the new licences, lower than the 74 per cent applicable for existing private sector banks. No time frame for issuing the licences has been given, but financial services secretary in the finance ministry, Rajiv Takru, said that "if all goes well, with all clearances, by end of the (next) financial year we will see some success".

RBI has given time till July 1 for receiving applications. L&T Finance, Aditya Birla Money, Religare and Reliance Capital are expected to apply.

India Inc. has been keen to enter banking ever since the announcement was made in budget 2010-11. But concerns over striking a balance between legitimate business risk and track records of some groups had made the regulator wary.

Friday's guidelines say RBI will examine the business model and "business culture" of the promoter groups. While it does not mention brokerage or the real estate sector, it says speculative activities or those "subject to high asset price volatility" are misaligned with the banking model.

The banks will be set up as subsidiaries of a non-operative financial holding company, which would be wholly owned by the promoters, and hold at least 40 per cent of the paid-up capital of the bank with a lock-in period of five years. To ensure promoters do not get access to deposits, RBI has laid down stiff exposure rules for the holding company and the bank. The banks must also list on stock exchanges within three years of starting operations.

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