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

Q.208. Will it be required to indicate the names of the Board members and key management personnel of the proposed Bank at the time of application or post obtaining the in principle approval? +

If a CEO/Management Team has not been 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.209. Are the applicants expected to state the details of the key managerial personnel of NOFHC as part of the application? +

Q.210. Are the Applicants expected to list out the Board of Directors of NOFHC as part of the application? +

A. The names of the Board of Directors of the NOFHC would be required to be furnished to the Reserve Bank after grant of in-principle approval. [Paragraph 2 (G) (vii) of the guidelines]

Q.211. (i) Is there a need to provide details of all the areas / centres (population, demographics, agriculture & mining activity, import, export etc) where branches will be opened by the bank at the time of the application? (ii) Does the applicant need to provide a one year or a five year business plan as part of the application? +

A. (i) & (ii)The period of business plan is left to the applicants. The business plan should be realistic and viable. It should address how the bank proposes to achieve financial inclusion. It would be desirable to give business plan covering three to five years.

Q.212. Will the RBI take up with the Government to waive off tax related issues if any, arising from shifting of investments from promoter company to the NOFHC and from the NBFC to the bank? +

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

Q.213. Will the proposed new bank be a direct member of clearing from day one or will they have to act as sub members? +

A. This would depend upon completion of certain formalities such as opening of current account with RBI, eligibility norms of the clearing houses, etc. for a member or a sub member.

Q.215. The requirement for ‘public’ shareholding will be satisfied as long as the shareholders that are proposed to be considered ‘public’ do not come within the definition of the term ‘Promoter’ or ‘Promoter Group’, as defined in Annexure I of the Guidelines- in other words, all shareholders that are not promoters or a part of the promoter group will be considered as public shareholders for the purpose of the Guidelines. +

A. For the purpose of these guidelines, ‘public shareholders’ would mean individuals/entities not belonging to the promoter group. ‘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. Such companies will hold not less than 51 per cent of the voting equity of the NOFHC. [para 2 (C) (ii) of the guidelines]

Q.216. Globally, automotive companies often have captive financial companies. Some of these financing companies operate as banks in geographies that permit them to operate as such. These entities are registered with and regulated by the RBI as NBFCs, and are required to comply with prudential norms prescribed by RBI on income recognition , asset classification, provisioning, capital adequacy, etc. As these entities are already under the direct supervision of RBI and these entities are critical and an integral part of the business operations of the industrial enterprises (s) they support, we request RBI to clarify that captive financing company/(ies) which are unlisted subsidiary/(ies) of a listed (overseas and / or domestically) automotive company in which Promoter/ Promoter Group hold less than 49 per cent, is not required to be brought under the NOFHC. We would alternatively request RBI to include a provision for granting case by case relaxation based on specific fact pattern of the applicant. +

A. All regulated financial sector entities, in which a Promoter has ‘significant influence’ or ‘control’ (as defined in Accounting Standard 23) will be held under the NOFHC[ para 2(C)(vii) of the guidelines]. No exemption can be granted to auto-finance companies in the Promoter Group in this regard. Further, no financial services entity held by the NOFHC would be allowed to engage in any activity that a bank is permitted to undertake departmentally. The activities that could be carried outside the bank are as mentioned in paragraph 2 (C) (iv) of the guidelines.

Q.217. Paragraph 2 (k) (vi) of the Guidelines provided that the bank should ‘build’ its priority sector lending portfolio from the commencement of its operations. We request a clarification from RBI on whether the current practice applicable to banks will be applicable to new banks also i.e. Priority Sector targets being set based on closing balance of advances of the previous financial year. Consequently, if a new bank commences on or after April 1, 201X, the advances at the end of the previous financial year will be nil, and hence priority sector targets will be set based upon the advances at March 31, 201X + 1 and this will need to be achieved by March 31, 201X + 2. +

A. The priority sector lending targets/achievements for a bank for the current year ending 31st March, will be based on the adjusted net bank credit (ANBC) outstanding as on 31st March of the previous year. The above example states the position correctly.