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

Q.128. Creation of NOFHC will add one more layer to the corporate Structure of a Promoter Group. Consequently, there will be a material additional incidence of Dividend Distribution Tax under the extant tax regulations. It would be critical for RBI and Government to provide pass through benefit of dividends declared and received by an NOFHC from financial services entities under it. +

Taxation will be as per the laws / rules of the tax authorities.

Q.129. Process of restructuring the existing financial entities (of Promoter group) to comply with guidelines involves substantial unintended costs including by way of stamp duty, income tax etc (e.g. MAT implication for NOFHC, as NOFHC would be non-operating entity having no offset available under MAT). Hence, appropriate changes to various legislations would be required to avoid this burden. We request that appropriate transition period is provided till the relevant legislations are so amended. +

Taxation will be as per the laws / rules of the tax authorities.

Q.130. Conversion of an existing NBFC into Bank through transfer / divestment / sell of portfolio could be subjected to stamp duty. It is submitted that RBI may take up the matter with Central Government for giving exemption to applicants who have to restructure their assets portfolio to meet with New Banking license guidelines of RBI. Central Government may persuade the State Government to follow suit. +

Taxation will be as per the laws / rules of the tax authorities.

Q.131. (i) Is it necessary to name a CEO at the application stage? (ii) Although Form III of the Banking Regulation (Companies Rule, 1949) requires applicants to provide the name of the CEO at the time of submission, applicants may find it difficult to attract the very best talent before getting clarity in the form of an in-principle approval. Hence it may not be desirable to have a particular CEO identified at the time of submission of the application itself. In view of the foregoing, and since the choice of the Bank CEO would in any case be subject to final approval by the RBI, our understanding is that we need to identify the particular candidate for the CEO’s position after getting an in-principle approval for the bank license but before commencement of operations. Please confirm. +

A. (i) & (ii)If a CEO is not identified at the application stage, names of management team including the CEO would be required to be furnished to the Reserve Bank after grant of in-principle approval.

Q.132. The prescribed Form III requires the Applicant to give the name of the proposed Chief Executive Officer, his qualifications, experience, age and the proposed remuneration. Pending the in-principle approval from RBI for a bank license, many likely CEO candidates with existing engagements may not be able to accept a role with potential applicants. It would be useful if RBI could clarify that pending the grant of a licence, a professional who is part of the Promoter Group can be appointed as an interim CEO and post the grant of an in-principle approval, the successful applicant can appoint a full time CEO with the prior approval of RBI. +

A. Ownership and management shall be separate and distinct in the NOFHC, the bank and entities regulated by RBI. [Paragraph (G) (vii) of the guidelines]. If a CEO is not identified at the application stage, names of management team including the CEO would be required to be furnished to the Reserve Bank after grant of in-principle approval.

Q.133. Would RBI allow new banks to use their/group brand name or logo or taglines used by other entities in the promoter group? +

A. Yes. The banks could use the promoter group’s brand name / logo or taglines in so far they represent and convey the banking function.

Q.134. Will a promoter holding minority stakes (say 27 percent) in the entity holding 100 percent of the NOFHC promoting a bank, be restricted from increasing its stakes in the promoting entity? If yes, for what period? +

A. The requirement as per the guidelines is that companies forming part of the Promoter Group whereof companies in which the public hold not less than 51 percent of the voting equity shares shall hold not less than 51 percent of the total voting equity shares of the NOFHC. As such, under no circumstances promoters would be allowed to increase their shareholdings in such companies beyond 49 percent in future in accordance with the requirement of para (2) (C) (ii) of the guidelines.

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.