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

Q.278. If yes, how would such ‘indirect’ shareholding in the bank be calculated for the purpose of 10% limit? +

No. Shareholding in Promoter Group entity holding shares in NOFHC will not be treated as ‘indirect’ shareholding in the bank. It may be mentioned here that the Promoters / Promoter Group entities / individuals associated with Promoter Group shall hold equity investment in the bank and other financial entities held by the NOFHC, only through the NOFHC [Paragraph 2 (C) (viii) of the guidelines]

Q.279. We presume that only domestic financial entities of the Group are required to be brought under NOFHC. Accordingly, overseas financial entities belonging to promoter group would be outside of NOFHC. Please confirm. +

A. All regulated financial sector entities in which a Promoter Group has significant influence or control (as defined in Accounting Standard 23) will be held under the NOFHC, including the overseas financial entities. However, this would not preclude the bank or any other financial services entity held under the NOFHC from having a subsidiary or joint venture or associate where it is legally required or specifically permitted by RBI and other financial sector regulators. [Paragraph 2 (C) (iii) of the guidelines]

Q.280. In case of listed NBFC desiring to promote the bank, it would be economically disadvantageous to have the two layered structure of the listed NBFC taking stake in the Banking entity through a wholly owned NOFHC. Hence, please let us know whether the listed NBFC can itself be considered / converted as the NOFHC and hence be permitted to directly promote the banking entity. In such a case, due to the fact of the NBFC being a listed entity, there is a need to provide exemption to the NOFHC being a wholly owned entity. +

A. The requirement is that the NOFHC has to be wholly owned by the Promoters/Promoter Group. [Paragraph 2 (C) (i) of the guidelines] Further, at least 51 percent of the voting equity shares of the NOFHC have to be held by companies in the Promoter Group in which public hold not less than 51 percent of the voting equity of those companies. [Paragraph 2(C)(i) & (ii) of the guidelines] Therefore, the listed NBFC cannot be converted into an NOFHC and promote the bank. No exemption can be granted for the purpose.

Q.281. Most banks and NBFCs have a staffing subsidiary. The employees in this company perform transactional activities for the bank / NBFC. Since such staffing subsidiaries are integral in nature to the banking business we presume that the banks/NOFHC would be continued to be allowed to hold such subsidiaries. Please confirm. +

A. The NOFHC will be required to hold only regulated financial services entities. The bank will be permitted to have a subsidiary or joint venture or associate, only where it is legally required or specifically permitted by RBI [Paragraph 2(C)(vi) of the guidelines]. Banks however, are not permitted to have staffing subsidiaries.

Q.282. A Financial Institution is set up under an Act of Parliament and its equity is held by public sector banks and insurance companies, owned or controlled by Government of India. Given this background, would it be a limiting factor for these promoters of the FI for carrying out their ongoing financial services? +

A. The Promoters/ Promoter Group would be permitted to set up a bank only through a wholly owned NOFHC as per the corporate structure envisaged in paragraph 2(C) of the guidelines. The NOFHC shall hold the bank as well as all the other financial services entities of the Group regulated by RBI or other financial sector regulators in which the Promoters/ Promoter Group have ‘significant influence’ or ‘control’ (as defined in Accounting Standard 23) [Paragraph 2(C)(iii) of the guidelines]. Further, the general principle is that no financial services entity held by the NOFHC would be allowed to engage in any activity that a bank is permitted to undertake departmentally [Paragraph 2(C)(iv) of the guidelines]. It is clarified that all lending activities in the group must be conducted from inside the bank.

Q.283. Whether FI would be under the obligation to transfer its shareholdings in its associates, subsidiaries and joint ventures (rating company, venture capital company, asset reconstruction company, etc) to the NOFHC? It may be added that some of these subsidiaries amongst themselves have cross holdings with each other. +

If the FI is a private sector entity, then it has to comply with the corporate structure prescribed at paragraph 2(C)(ii) of the guidelines. If the FI is a public sector entity, provisions of the paragraph 2(C)(ii) of the guidelines will not be applicable, though the entity has to set up a NOFHC for holding the bank. In either case, the activities that can be conducted by a bank have to be transferred to the bank and the regulated financial services activities which a bank cannot undertake have to be transferred to a separate subsidiary or subsidiaries under the NOFHC.[para 2 (C) (iii) of the guidelines]

Q.284. Can the FI still continue to do refinance activity along with other developmental activities like cluster development programme, entrepreneurship development programme. It is submitted that these being specialized activities permitted by the statute to specified institutions, may not be construed as normal financial services activity for the purpose of the above definition. +

Q.285. Can the venture capital company, presently a wholly owned subsidiary of the FI, be allowed as a separate arm under the NOFHC, in line with guidelines permitting infrastructure debt funds to be carried out by a separate subsidiary under NOFHC? Or can it be allowed to carry on the activity outside the NOFHC as wholly owned subsidiary of FI ? +

Q.286. The FI is presently extending direct finance to eligible entities (which are in the priority sector category) as permitted by the statute, to supplement efforts of the banks by introducing new and innovating products for adoption by other lenders in due course. In addition, the FI also extends equity/quasi equity assistance to the eligible entities as permitted by the statute and supported by the Government through special dispensation, also approved by the regulator. These being permitted activities under statute, can the same be continued by the FI? +

Q.287. Where shares of a NOFHC are held by public charitable trusts, whose trustees are the promoters of financial services companies, whether the shareholding of such public charitable trusts be considered as meeting the condition 2(C)(ii)(b)? +

The shares of NOFHC can be held by individuals, corporate entities and companies belonging to the Promoter Group. A trust does not fall under either of these categories. Therefore, a public charitable trust or an employee welfare trust cannot hold voting equity shares directly in the NOFHC but can hold indirectly through a company which holds equity shares of the NOFHC. If the Promoters have control over the trust, the trusts will not be treated as ‘public’ for the purpose of computing ‘public shareholding’ in companies which would hold not less than 51 per cent of the voting equity of the NOFHC. [Paragraph 2(C)(ii)(b) of the guidelines]

Q.288. Where shares of a NOFHC are held by employee welfare trust, whether the shareholding of such trust be considered as meeting the condition 2(C)(ii)(b)? +

Q.289. Will RBI consider employee welfare trusts as being held by public, in order to comply with NOFHC requirements for promoter group? +

Q.290. Where a group is engaged in financial services sector and has investments in various companies / SPVs/ joint ventures through holding company which is typically Core Investment Company (CIC) or Systemically important non-deposit taking CICs (CIC-ND-SI), will they have to undergo the rigour of dismantling the CIC / CIC-ND-SI structure in view of new concept of NOFHC? +

A CIC of the Promoter Group will be eligible to hold the voting equity shares of NOFHC. Alternately, a CIC of the Promoter Group may also become a NOFHC. However, under both the options, the corporate structure of the NOFHC must comply with requirements at para 2 (C) of the guidelines, and the new bank and the regulated financial sector entities in which Promoter Groups have ‘significant influence’ and ‘control’ (as defined in Accounting Standard 23) have to be held under the NOFHC. [Paragraph 2(C)(iii) & (vii) of the guidelines]

Q.291. Can the CIC registered with RBI be eligible to act as NOFHC? +

Q.292. Post setting up the bank, if the promoters wish to enter into new financial businesses such as insurance, asset management, do they set up a new subsidiary under the NOFHC or under the bank? +

A. Post setting up the bank, if the promoters wish to enter into new financial business such as insurance, asset management, they have to set up new subsidiaries under the NOFHC; not under the bank. This would not preclude the bank from setting up a subsidiary, if there is a legal requirement or requirement of the concerned financial sector regulator, subject to RBI approval. However, the NOFHC shall not be permitted to set up any new financial services entity for at least three years from the date of commencement of its business. [para 2(C)(vi) of the guidelines]

Q.293. Existing guidelines for Infrastructure Debt Funds (IDFs), cap the ownership stake of potential bank sponsors of an IDF (NBFC structure) to a maximum of 30 percent, and that of potential IFC-NBFC sponsor at 49 percent. Could the NOFHC holding the bank also have an ownership share of more than 49 percent in a separate IDF subsidiary? +

A. The NOFHC shall hold the bank as well as other financial services entities of the Promoter Group regulated by RBI or other financial sector regulators [para 2(C)(iii) of the guidelines]. Accordingly, the NOFHC will replace bank/NBFC as sponsor of IDF and contribute a minimum equity of 30 percent and maximum equity of 49 percent of the IDF-NBFC. (Please refer RBI circulars DBOD.FSD BC No 57/24.01.006 dated November 21, 2011 and DNBS. PD. CC. No 249/03.02.089 dated November 21, 2011).

Q.294. Company A, a 50:50 Joint Venture between Company S & Company B (non resident), is an NBFC classified as an Asset Finance Company. Company A is engaged in the business of equipment financing. Investment in Company A (50%) is proposed (i) to be transferred to Non Operative Financial Holding Company (“NOFHC”) (a newly incorporated WOS of Company S) by Company S or (ii) to be transferred to NOFHC by Company S and then to Bank (a newly incorporated WOS of NOFHC) by NOFHC. a) Whether investment in Company A (50%) can be held by bank? b) If answer to the question (a) is negative, whether investment in Company A can be held by NOFHC? +

A. (a & b) Since the NOFHC shall hold the bank as well as other financial services entities of the Promoter Group, regulated by RBI or other financial sector regulators [Paragraph 2 (C) (iii) of the guidelines], the bank held under NOFHC will not be permitted to hold the equity shares of an Asset Finance Company (AFC) held under the same NOFHC. Therefore, the bank cannot have 50 per cent equity investment in Company A, unless required by law or specially permitted by RBI and concerned financial sector regulator. Subject to the above, the investment in Company A has to be held by the NOFHC.

Q.295. Will it be mandatory to transfer any financial services activity which is currently not regulated but which will be regulated by the sectoral regulators in future, under the NOFHC? +

A. Yes, all regulated financial services activities, in which a Promoter Group has ‘significant influence’ or ‘control’ (as defined in Accounting Standard 23), whether presently regulated or regulated in the future, will need to be under the NOFHC, when so regulated. [Paragraph 2(C)(vii) of the guidelines]

Q.296. If an existing NBFC is converted into a bank or an existing business is transferred to the bank to be carried out by it “departmentally”, then will the same be permitted to be valued at fair value for the purpose of issuance of voting capital? +

A. The assets and liabilities for the purpose of transfer from one entity to another under restructuring of the existing business may be valued as per the relevant provisions of the applicable laws.

Q.297. Will this mean that any restructuring of existing businesses held by NOFHC which may give rise to forming new entities or transfer of existing business to new entities by way of merger, demerger, internal restructuring etc. is also prevented for a period of 3 years from the commencement of business of NOFHC? If the sector regulator says SEBI or IRDA are to specify new norms regulating sector specific entities entailing setting up of new entities, will this require prior approval of RBI? +

A. No. The restriction on setting up of new financial services entity within the first three years would not apply to restructuring of the existing business / demergers or any other restructuring of existing business mandated by the sectoral regulators. This will have to be undertaken with RBI’s approval.

Q.298. Can the shareholders of a listed company (which is a promoter of NOFHC and the bank) become shareholders of the bank? +

A. The public shareholders (i.e. other than the Promoters/Promoter Group entities/individuals associated with the Promoter Group) of the company promoting the NOFHC are permitted to hold equity investments in the bank and other financial entities held by the NOFHC directly. [Paragraph 2(C)(viii) of the guidelines]

Q.299. Please clarify whether % voting equity shares of NOFHC would be calculated on a fully diluted basis (i.e. including outstanding convertible instruments and warrants) +

For the purpose of ensuring that minimum 51 per cent voting equity shareholding in the NOFHC are held by the companies in which public hold not less than 51 per cent, any convertible instruments held by the promoters, whether compulsorily or optionally convertible into voting equity shares, will be considered as voting equity shares.

Q.300. Is the percentage shareholding to be computed on fully diluted basis (taking into account any issue of convertible instruments and assuming complete conversion)? +

Q.301. How will Non-Voting Capital be treated in the context of shareholding pattern of NOFHC and Bank for the purpose of meeting prudential norms as well as for calculation of promoter shareholding? +

A. Non-voting capital will not be reckoned for the purposes of calculation of promoter shareholding in the NOFHC. The non-voting capital in the NOFHC will be counted towards meeting prudential norms if it meets the eligibility criteria for inclusion in the regulatory capital as laid down in the guidelines on Basel III Capital Regulation issued vide circular DBOD.No.BP.BC.98/21/06.201/2011-12 dated May 2, 2012. [Paragraph 2 (D) of the guidelines]

Q.302. What is the minimum capital / networth required for NOFHC? +

A. The minimum capital required for the bank is ` 5 billion, and the NOFHC is initially required to have atleast 40 per cent shareholding in the bank. The minimum capital of the NOFHC should be such as to meet the above requirements as well as the requirement of holding prescribed capital in other financial sector entities held by the NOFHC as per the norms laid down by the financial sector regulators.[Paragraph 2(D) of the guidelines]

Q.303. Can more funds be infused into the bank, over and above the business plan submitted to the RBI? Would any specific approval be required for this? +

A. As stated in Paragraph 2 (D) (i), the initial minimum paid up voting equity capital for a bank shall be ` 5 billion. Any additional voting equity capital to be brought in will depend on the business plan of the Promoters. They can bring in any amount of capital over and above the minimum required to support the business plan and the capital raising programmes would be subject to approvals as indicated in RBI circular dated April 20, 2010 on issue and pricing of shares by private sector banks. Further, the capital raising programmes should be in compliance with stipulations mentioned in Paragraphs 2 (D) (ii) to (v), 2 (F), 2 (K) (ii), (iii) and (x) of the guidelines.

Q.304. If the voting equity shares of the bank are issued at a premium, can the ` 500 crore threshold be achieved via Networth instead of paid up capital? +

A. No. The initial minimum capitalization of the bank should be paid-up voting equity capital of ` 5 billion.

Q.305. Apart from public issue and private placement, would any other methodologies be available to the bank / NOFHC to effect dilution in the bank. +

A. Yes, apart from public issue and private placement, other methodologies, such as sale of shares can also be resorted to for achieving dilution of shareholding in the bank. [Paragraph 2 (D) of the guidelines]

Q.306. Will the NOFHC require RBI permission for infusing funds / capital in any financial services entity which is regulated by other sectoral regulators and which is held by the NOFHC? +

A. The capital requirements for the regulated financial services entities held by the NOFHC shall be as prescribed by the respective sectoral regulators. Prior permission from RBI would be required for the NOFHC to infuse funds/capital in any financial services entity held under it, which is regulated by any other financial sectoral regulator. The objective of such approval from RBI would be to ensure that all the entities including the bank on stand-alone basis as well as the consolidated bank meet the minimum capital adequacy requirement.

Q.307. Whether secondary sale of NOFHC shareholding in the bank will be permissible? If yes, would it require RBI permission? +

A. Yes, subject to compliance with paragraph 2(D)(iii) and (iv) of the guidelines. However, sale of NOFHC shares in the bank resulting in the acquisition of shares at 5 per cent or more of the bank by any person directly or indirectly would require prior approval of RBI.

Q.308. Can shares of the bank be offered as ESOPs to employees of NOFHC? +

A. Yes, provided the minimum shareholding by the NOFHC in the bank as prescribed is maintained at all times.

Q.309. To what extent ESOPs can be provided to the employees of the bank? +

A. The bank may issue ESOPs to its employees as per its own policy and in compliance with guidelines issued by SEBI.

Q.310. In the context of listing, we understand that the capital market regulator has taken a stance that non-voting capital is not permissible but capital with differential voting right is permissible. Given this background, how will RBI’s requirement be met in this regard? +

Non-voting shares are outside the purview of the guidelines, but subject to relevant laws and SEBI regulations wherever applicable.

Q.311. Is shareholding by way of non-voting equity shares in the bank envisaged or permitted? +

Non-voting shares are outside the purview of the guidelines, but subject to relevant laws and SEBI regulations wherever applicable.

Q.312. Please specify the timeline for issuance of separate directions for NOFHC. +

The NOFHC guidelines will be issued shortly.

Q.313. Please clarify whether such directions would also contain guidance on the exact structuring of the NOFHC (minimum capital, permissible capital (equity v/s preference) etc.)? +

The NOFHC guidelines will be issued shortly.

Q.314. The NOFHC will be registered as a non-banking financial company (NBFC) with the RBI and will be governed by a separate set of directions issued by RBI. What are the proposed financial criteria (e.g. networth, paid up capital, etc.) applicable to NOFHC? +

The NOFHC guidelines will be issued shortly.

Q.315. When are the guidelines for NOFHC likely to be issued by RBI? +

The NOFHC guidelines will be issued shortly.

Q.316. When the direction for NOFHC to be issued by RBI is expected? +

The NOFHC guidelines will be issued shortly.

Q.317. Since NOHFC will be governed by a separate set of directions to be issued by RBI, in order for us to understand the full implications, we would request that these guidelines be issued immediately. +

The NOFHC guidelines will be issued shortly.

Q.318. Please elaborate and clarify on the meaning of ‘indirect’ shareholding of a non-resident shareholder in the Bank. +

A. Indirect shareholding would be 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. [Paragraph 2 (F) of the guidelines]

Q.319. Where an existing company in which non-resident shareholding is more than 50 per cent promotes a NOFHC, will RBI allow any transition time for the non-resident shareholding to go below 50 per cent to meet the condition 2(A) (i)? +

A. 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) (B) and (C) (iii) of the guidelines within a period of 18 months.

Q.320. Para 2 (F) limits the aggregate non-resident holding at 49%. We believe that only direct shareholding will be taken into consideration for computing the foreign shareholding. Please confirm. +

A. The foreign shareholding in the bank will be calculated as per the Department of Industrial Policy and Promotion (DIPP) Press Notes 2, 3 and 4 of 2009 / FEMA Regulations as amended from time to time. Therefore, the indirect foreign shareholding will be calculated as per the methodology enumerated in DIPP Press Notes 2, 3 and 4 of 2009 / FEMA Regulations as amended from time to time. [Paragraph 2(F) of the guidelines]. As the Promoter Group companies that would set up the NOFHC would be ‘owned and controlled by residents’, their downstream investment in the NOFHC and further in the bank will not be counted towards foreign indirect investment.

Q.321. Whether any foreign company, which is controlled by foreign bank or foreign bank have significant influence in such company, shall be allowed to hold shares in the private Indian bank? Further, whether there would be any difference in opinion if such foreign bank also has its branches in India? +

A. Yes. A foreign company, which is controlled by a foreign bank or a foreign bank having significant influence in such a company, can hold shares in a private Indian bank. Further, there would be no difference, if such foreign bank also has its branches in India. However, no non-resident shareholder, directly or indirectly, individually or in groups, or through subsidiary, associate or joint venture will be permitted to hold 5 per cent or more of the paid-up voting equity capital of the bank for a period of 5 years from the date of commencement of business of the bank (Paragraph 2(F) of the guidelines). The equity holding of the foreign bank in the new bank would also be subject to extant guidelines on cross-holding among banks.

Q.322. Under clause 2(F) of the guidelines, no non-resident shareholder directly or indirectly will be permitted to hold 5 percent or more of the paid up voting equity capital of bank. In computing the threshold of 5%, whether proportionate theory needs to be adopted (similar to the basis followed for insurance sector) or would it be governed by extant FDI policy? +

A. No non-resident shareholder, directly or indirectly, individually or in groups, or through subsidiary, associate or joint venture will be permitted to hold 5 percent or more of the paid-up voting equity capital of the bank for a period of 5 years from the date of commencement of the business of the bank. For the purpose of computing this limit, proportionate theory will not be adopted. [Paragraph 2(F) of the guidelines]

Q.323. As per clause (A)(i) of the Guidelines, eligible promoters must be entities/ groups in the private sector that are owned and controlled by residents as per DIPP guidelines. As per the DIPP guidelines, once an entity is ‘owned and controlled by a resident, any foreign holdings in such entity are not required to be counted for the purposes of computing FDI in an investee company. Further, as per clause (F) of the Guidelines, FDI in a banking company must be determined after considering both direct and indirect ownership. Would it be correct to read the above provisions to mean that the NOFHC’s ownership in the new bank will be considered as being held by residents and any FDI/ FII investment in the Promoter Group entities (especially where such entities are listed entities) which meet with the owned and controlled test as per DIPP guidelines, will not be considered in computing the overall 49% FDI / FII limits for the new bank. +

As the NOFHC will be wholly owned by entities/Groups that are ‘owned and controlled by residents’ [as defined in the Department of Industrial Policy and Promotion (DIPP) Press Notes 2, 3 and 4 of 2009/FEMA Regulations as emended from time to time], the foreign investment through these companies would not be considered for computation of foreign investment in the bank held under the NOFHC. [Paragraph 2(F) of the guidelines]

Q.324. We understand that since the Promoter Group entities would be ‘owned and controlled by residents’ as per DIPP guidelines, any FDI/ FII investment in the Promoter Group entities will not be considered in computing the overall 49 percent FDI/ FII limit for the new bank. Should our understanding be incorrect, would the indirect foreign investment in the bank, be counted on a proportionate basis mentioned above? +

Q.325. Is NRI investment under schedule 4 of FEMA 20 (on a non-repatriation basis) counted towards the 49 per cent cap? +

A. Yes. NRI investment under schedule 4 of FEMA 20 (on a non-repatriation basis) is counted towards the 49 per cent cap.

Q.326. Can the NOFHC and bank Board consist of eligible individuals who are non resident Indians or foreign nationals? +

A. There is no bar on having eligible individuals who are non resident Indians or foreign nationals on the Boards of the NOFHC and the bank. [Paragraph 2 (G) (vii) of the guidelines]

Q.327. Can NOFHC be managed by a person who is a director in any entity which is the Promoter / Shareholder of NOFHC? +

The NOFHC has to be managed by a person who is in whole-time employment and he / she cannot be a director in any other company (other than the bank or a subsidiary of the NOFHC or a Section 25 company) and is not engaged in any other business or vocation. [Paragraph 2(G)(ii)(a) and (b) of the guidelines]. Ownership and management shall be separate and distinct in the NOFHC, the bank and entities regulated by RBI. [Paragraph 2(G) (vii) of the guidelines]

Q.328. Please clarify whether this provision will be applicable to Promoter groups which are promoted by financial sector professionals and where such professionals are the owners as well as managers of various financial services entities by virtue of their past experience and expertise. +

Q.329. Can the NOFHC and bank management (Chairman, Vice Chairman, MD/CEO, COO, CFO, CRO, etc.) be non resident Indians or foreign nationals? +

A. There is no bar on having eligible individuals who are non resident Indians or foreign nationals as executives of the NOFHC and the bank. However, executives such as MD / CEO, COO, CFO & CRO, etc. who are full time employees will have to be resident in India. Appointment of Chairman and MD/CEO of the bank will have to be with the prior approval of RBI as per section 35B of the Banking Regulation Act, 1949. [Paragraph 2 (G) (vii) of the guidelines] and RBI Press Release 2005-2006/142 dated August 2, 2005.

Q.330. As per para 2(G) (ii), no NOFHC shall be managed by any person, (a) who is a Director in any other company not being a subsidiary of the NOFHC or a company registered under Section 25 of the Companies Act, 1956 (1 of 1956) or (b) who is engaged in any other business or vocation. Whether these restrictions would apply to Key Managerial Person (as defined in proposed Companies Bill 2012)? +

Person in this clause refers to a person who is the Chief Executive Officer or whatever name called, of the NOFHC, who manages the NOFHC on a whole time basis and is not a director in any other company (other than the bank or a subsidiary of the NOFHC or a Section 25 company) and is not engaged in any other business or vocation.

Q.331. Para 2 (G) (ii) of the guidelines indicate that – No NOFHC shall be managed by any person- (a) who is a Director in any other company not being a subsidiary of the NOFHC or a company registered under Section 25 of the Companies Act, 1956 (1 of 1956) or (b) who is engaged in any other business or vocation RBI may clarify that these restrictions would apply to Key Managerial Person (as proposed in the Companies Bill 2012). +

Q.332. Currently, various sectoral regulators have a simple formula for capital requirement. Is there a distinct formula / mechanism followed by RBI for computation of risk weighted assets in financial services entities regulated by other regulators? +

A. NOFHC should maintain capital adequacy and other requirements on a consolidated basis based on the prudential guidelines on Capital Adequacy and Market Discipline – New Capital Adequacy Framework (NCAF) issued under Basel II framework and Guidelines on Implementation of Basel III Capital Regulations in India [Paragraph 2(H)(iii) (a) of the guidelines].

Q.333. Can the borrowings/ leverage of NOFHC be sourced from entities other than the promoter group? +

A. Yes. Subject to a leverage of 1.25 times of paid up equity capital and free reserves, NOFHC can have borrowings from entities both within the Promoter Group and outside the Group [Paragraph 2(H)(i)(g) of the guidelines] .

Q.334. What is the nature of the business plan submission (excel model / word file / any other format)? +

A. The business plan can be submitted in any format. [Paragraph 2 (J) of the guidelines]

Q.335. Further, will the approval be required when a shareholder of NOFHC crosses 5% holding threshold for the first time or will it be required every time such shareholder crosses 5% threshold? This scenario could arise when a shareholder holding less than 5% acquires shares to cross 5% in 1st round, gets diluted to less than 5% in 2nd round of capitalisation and again acquires shares to cross 5% in 3rd round of capitalization. +

A. RBI approval will be required for acquisitions / transfers every time the shareholding reaches 5 per cent threshold or above. [Paragraph 2 (K) (ii) of the guidelines]

Q.336. In clause 2(K)(ii) of the guidelines, would ‘acquisition of shares’ mean ‘direct’ acquisition of shares of Bank or does it also include acquisition of shares of any entity above the Bank which will effectively / indirectly result in acquisition of 5% or more of voting equity of the Bank? +

No. For the purpose of paragraphs 2(K)(ii) and 2 (K)(iii) of the guidelines, both direct and indirect shareholding will be considered. The indirect shareholding would mean the shareholding in the bank through entities in which a person holds ‘significant influence’ or ‘control’ as defined in Accounting Standard 23.

Q.337. If yes, how would such ‘indirect’ acquisition of shareholding in the Bank be calculated for the purpose of 5% limit? +

Q.338. Please elaborate and clarify on the meaning of ‘indirect’ shareholding of an entity in the Bank referred to in 2(K)(iii). +

Q.339. Please specify the information / details to be submitted for persons/entities who would subscribe to the voting equity of NOFHC and Bank. +

The entities/individuals belonging to the Promoters/Promoter Groups, which would participate in the voting equity shares of the NOFHC, would have to provide the Memorandum and Articles of Association, financial statements for past ten years and Income Tax returns for last three years, as appropriate, at the time of submission of their application. The last available financial statements in respect of other Group entities, which do not participate in the voting equity shares of the NOFHC will also have to be furnished. The details of the Promoters’ direct and indirect interest in various entities/companies/industries and details of credit/other facilities availed by the Promoters/Promoter Group would be required of all entities. [Paragraph 3 of Annex II to the guidelines]. Information as above would also be required to be furnished by an individual / entity / group proposing to acquire, in aggregate, 5 per cent or more of the paid-up voting equity capital of the bank, while seeking prior approval of RBI. [Paragraph 2 (K) (ii) of the guidelines]

Q.340. Please clarify whether the information prescribed in this clause needs to be provided for all entities in the Promoter Group or only those promoter group entities which would subscribe to the voting equity of NOFHC. +

Q.341. Please provide clarity on the criteria for maintaining 25% of branches in unbanked rural centres : Whether it is on the conversion of Tier 1 centre branches? Whether it is on the opening of new branches? Or whether it is on the entire NBFC branches that are sought to be converted? +

A. The bank would be required to open at least25 per cent of its branches in unbanked rural centres [Paragraph 2 (K) (vii) of the guidelines]. This would mean that out of the total number of branches, the bank opens in the first year of operation by setting up new branches and by converting the existing branches of NBFCs into bank branches as permitted by RBI [paragraph 2 (L) of the guidelines], 25 per cent of branches have to be in unbanked rural centres. This rule would apply in every subsequent year.

Q.342. 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. As per the Banking Laws (Amendment) Act 2012 passed by the Parliament, RBI has been empowered to increase ceiling of voting rights from 10 per cent to 26 per cent. In view of the legislation change, the 10 per cent ceiling for new banks may be enhanced to 26 per cent. +

It is clarified that as per the extant policy 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. In the context of the amendments to the Banking Regulation Act, 1949, the issue of raising the voting rights from 10 per cent to 26 per cent in phases will be considered as and when necessary and will be notified separately. [Paragraph 2 (K) (iii) of the guidelines]

Q.343. As per the Banking Laws (Amendment) Act 2012 passed by the Parliament, RBI has been empowered to increase ceiling of voting rights from 10% to 26%. In view of the legislation change, the 10% ceiling for new banks may be enhanced to 26%. +

Q.344. Can a Business Correspondent (BC) model for delivery of banking services be carried out by the bank’s own staff? +

No. The Business Correspondents (BCs) by definition are banks’ agents, and not their employees.

Q.345. Can the BC model for delivery of banking services be carried out by the Bank’s own staff? +

No. The Business Correspondents (BCs) by definition are banks’ agents, and not their employees.

Q.346. If an applicant wants to focus on door to door banking, will large scale door to door banking model be acceptable considering existing guidelines on BC issued by RBI? +

The Promoters/Promoter Groups of banks may draw up their plan for financial inclusion, by adopting BC/ICT model, in addition to the branches. The new bank may undertake door step banking to the extent and in the manner provided in the guidelines issued vide RBI circulars DBOD. No.BL.BC.59/22/22.01.010/2006-207 dated February 21, 2007 and DBOD. No. BL. BC.99/22.01.010/2006-07 dated May 24, 2007.

Q.347. If a particular applicant wants to focus on door to door banking, will the RBI have an issue with a large scale door to door banking model being used by an applicant? +

Q.348. Will clauses applicable to Housing Finance Company (governed by NHB) be same as applicable for NBFC when applying for licence? +

A. Yes. The Promoters/Promoter Group of a housing finance company(HFC) regulated by NHB desiring to promote a bank or convert the HFC into a bank will have to comply with the additional conditions stipulated at paragraph 2(L) of the guidelines.

Q.349. Where bank is formed by transfer of assets / loan portfolio etc. from NBFC, the consideration may be settled by issue of shares at premium. It may be clarified that securities premium would be considered for computing the capitalization of the bank. +

The bank shall have initial voting equity shares of ` 5 billion. For this purpose, the amount in the share/securities premium account will not be counted. However, in case of conversion of an NBFC into a bank, the bank shall have at all times a minimum networth of ` 5 billion. [Paragraph 2(D)(i) and 2(L)(b)&(c) of the guidelines]

Q.350. With regard to the initial capital requirement for a bank, is it net worth of ` 5 billion or the paid up equity capital of ` 5 billion as per condition 2D(i) and 2L(b)? +

Q.351. Where bank is formed by transfer of assets / loan portfolio etc. from NBFC, the consideration would be settled by issue of shares, which could happen by issue of shares at premium. RBI may clarify that securities premium would be considered for computing the capitalization of the bank. +

Q.352. Can RBI provide a range/estimate on the minimum and maximum number of licenses that it is planning to issue? +

A. There is no predetermined number. RBI will be very selective while considering the applications for new bank licences. It will look for very high quality applications. It may, therefore, not be possible to issue licence to all the applicants meeting the eligibility criteria. [Paragraph 4(ii) of the guidelines]

Q.353. What is the timeline for granting in-principle approvals? Will all approvals be granted at one-go or over a period of time? +

A. As indicated in the guidelines, applications for licences will be received upto July 1, 2013. Thereafter, a detailed due diligence process has to be undertaken, and after completion of all processes mentioned at paragraph 4(iii) to (v) of the guidelines, in-principle approvals will be granted. It will not be possible to indicate the timeline for grant of in-principle approvals at this stage.

Q.354. Whether bank is only required to be incorporated within 1 yr of granting in-principle approval or shall also be required to commence the banking business (i.e. accepting deposits, giving loans, etc), obtaining necessary registration & opens at least 25 per cent of its branches in unbanked rural centres? +

A. After the in-principle approval is accorded by RBI for setting up of a bank, the Promoters/Promoter Group have to set up the NOFHC and the bank within 18 months from the date of in-principle approval and the bank has to commence banking business within this period after obtaining the banking licence from RBI under Section 22 of the Banking Regulation Act, and letter of authorization for opening branches, under Section 23 of the Act, ibid.

Q.355. Whether key managerial personnel of any entity of the Promoter Group will be treated as part of the Promoter Group? +

A. The definition of Promoter / Promoter Group is given in Annex I to the guidelines. Accordingly, key managerial personnel of any entity of the Promoter Group will not be treated as part of the Promoter Group, unless they fit in the definition as at Annex 1 of the guidelines.

Q.356. The term ‘individuals associated with Promoter Group’ needs specific definition. Will people who are employees / directors / shareholders of the Promoter / Promoter Group entities be treated as ‘individuals associated with Promoter Group’? +

A. The definition of the term ‘individuals associated with the Promoter Group’ referred to in para 2(I)(iii) of the guidelines will be guided by the principles underlying the provisions of Section 20 of the Banking Regulation Act, 1949.

Q.357. Promoter means, the person who together with his relatives (as defined in Section 6 of the Companies Act, 1956), by virtue of his ownership of voting equity shares, is in effective control of the NOFHC, and includes, wherever applicable, all entities which form part of the Promoter Group. The term "effective control" may be clarified. +

The term ‘effective control’ means any arrangement whether in the form of shareholding or agreement or otherwise, which enables exercise of control.

Q.358. The term "effective control" may please be clarified. +

The term ‘effective control’ means any arrangement whether in the form of shareholding or agreement or otherwise, which enables exercise of control.

Q.359. Request you to kindly elaborate the details required to be submitted to RBI for verification of source of funds. +

A. The applicants should furnish detailed information about the persons/entities, who would subscribe to the voting equity capital (shareholding pattern) of the proposed NOFHC and the bank, including foreign equity participation in the proposed bank. Applications should be supported by detailed information on the background of Promoters, their expertise, track record of business and financial worth, Memorandum and Articles of Association and latest financial statements of the Promoter entities for the past ten years, income tax returns for last three years, details of Promoters’ direct and indirect interests in various entities/companies/industries, details of credit/other facilities availed by the Promoters/ Promoter entity(ies)/ other group entity(ies) alongwith details of the bank’s/ financial institution’s branches where such facilities were / are availed. The Promoters may furnish any other relevant information and documents supporting the applications. Further, the RBI may call for any other additional information, as may be required, in due course. [Paragraph 2 to 4 of Annex II to the guidelines].

Q.360. The transfer of the large quantum of NBFC balance sheets to the banking sector in one go can create systemic risks for the new bank and financial services sector more broadly. The incremental capital requirement purely to allow for the New Bank to cover for the NBFC book related SLR differential and Priority Sector Lending Limit increases, can create a sizable credit challenge for the banking sector. As an illustration, assume ten of the leading NBFCs in India would convert to a bank, this would mean a book conversion of ` 2,50,000 crores. This would mean an additional SLR requirement of around ` 70,000 crore and a PSL requirement ranging between ` 70,000 to ` 80,000 crore (assuming some coverage PSL from the existing book). This would mean around ` 1,50,000 core additional capital requirements, which would have significant systemic implications. Separately pre-mature termination of this loan book by NBFC to draw down the book size will come at a significant cost. This will put at a significant advantage, any NBFC wishing to apply for a New Bank. Additionally the capital resources available for the growth of the bank may suffer considerably. +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

As per the current guidelines, the PSL targets (40 per cent of adjusted net bank credit) for the current year (April-March) are computed based on the adjusted net bank credit (ANBC) or credit equivalent of off-balance sheet exposures (OBSE) of 31st March of the preceding year (April-March), whichever is higher, and the achievements under the targets are reckoned on the position as on 31st of the succeeding year.

The new banks have to comply with the PSL requirements- targets and sub-targets. For the new banks converted from NBFCs and for new banks that would acquire the loan book from the Group entities (NBFCs), the PSL targets and sub-targets and achievements thereunder would be counted on the entire portfolio after the commencement of business as per the existing instructions. The newly set up banks will have time from the date of grant of in-principle approval to achieve the PSL target. The amount of time would depend upon the date of commencement of their banking business.

For example, if ‘in-principle’ approval is granted in February 2014, the bank has to commence banking business latest by August, 2015. In that case, the bank has to maintain PSL by March 31, 2017 on the ANBC base as of March 31, 2016 (the reference date). In such a scenario about 37 months would be available to the Promoters/Promoter Groups to achieve the PSL target. In an alternate scenario, if ‘in-principle’ approval for setting up of a bank is granted sometime in April, 2014, the bank has to commence banking business latest by October 2015. If the bank commences banking business by October 2015, the ANBC base for computation of PSL targets gets shifted to March 31, 2016 (the reference date), and the bank has to achieve the targets by March 31, 2017 ( i.e. 35 months from the date of issue of ‘in-principle’ approval). In a third scenario, if ‘in-principle’ approval is granted in June 2014, the bank has to commence banking business latest by December 2015. In that case, the bank has to maintain PSL by March 31, 2017 on the ANBC base as of March 31, 2016 (the reference date). In such a scenario about 33 months would be available to the Promoters/Promoter Groups to achieve the PSL target on the existing loan book carried over to the new banks.

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

The conversion of existing NBFC branches into bank branches would be automatically permitted for Tier 2 to 6 centres. The number of ultra small branches (USB) and number of branches in Tier 2 to 6 centres, would be as per the business plans of the Promoters/Promoter Group and requirement of the new bank. In the case of Tier 1 centres, conversion would only be allowed with the specific prior approval of the RBI and subject to the existing rules/ methodology applicable to domestic banks regarding opening of branches in these centres, and also subject to maintaining a minimum 25 per cent of the bank branches in unbanked rural centres (population up to 9,999 as per the latest census) required of all banks as specified in 2(K) of the guidelines. For this purpose, RBI would issue a letter of authorization under Section 23 of the Banking Regulation Act, 1949.

In cases of excess NBFC branches in Tier 1 centres, all such branches which would carry out banking business may, with prior RBI approval, be converted into bank branches. The excess over the entitled number of Tier 1 branches would be adjusted against the future entitlements of the new bank within a maximum period of 3 years from the date of commencement of business by the bank. The remaining Tier 1 branches will have to be closed down at the end of three years. The Promoters/Promoter Group have to provide a roadmap in this regard.

e) FDI in the new banks

As transfer of assets and liabilities would be a part of the re-organization of the business of the group entities to comply with the provision of our guidelines, more particularly to comply with the NOFHC structure, the new bank would be permitted to grandfather such liabilities till maturity, subject to the following conditions:

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

The receipt of applications for the new bank licence will close on July 1, 2013. At the time of making applications, the Promoters/Promoter Groups 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 (C)(ii) and (iii) of the guidelines and realign the business between the entities to be held under the NOFHC (para 2(C)(iv) within a period of 18 months. After the ‘in-principle approval’ is accorded by RBI for setting up of a bank, the proposed bank has to start operations within this period. The actual setting up of NOFHC and the bank, re-organization of the Promoter Group entities to bring the regulated financial services entities under the NOFHC as well as realignment of business among the entities under the NOFHC have to be completed during this period. The Promoters/Promoter Group would be issued the banking licence under Section 22 of the Banking Regulation Act, 1949 for carrying out of banking business by the Reserve Bank of India upon compliance with the terms and conditions stipulated in the ‘in-principle approval’ for setting up of a bank and on completion of the process as mentioned above within the stipulated time frame of 18 months from the date of in-principle approval.

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.361. In order to avoid an immediate destabilizing effect of such an NBFC book transfer, we would recommend a two year period from the start of bank operations for a phased write down or transfer of assets and liabilities of the NBFC book. To ensure transparency, we recommend that this be applicable to only the original book of NBFC business pre-transfer and any new business would be booked in the books of the new bank. +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.362. Process of restructuring the existing financial entities in 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. +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.363. If it is possible to convert only a few existing NBFC branches to a bank branch (based on the criteria of 25 per cent branches in unbanked rural centre), please clarify whether the other branches can carry on business until they convert to a bank branch? Transition period of 7-10 years be provided for conversion of 75 per cent branches of NBFCs to a bank branch. There should be co-existence of both NBFC and bank branches for a certain period. In this transition period, we request that the SLR and CRR requirement will apply only on the balance sheet of the bank. +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.364. NBFC (with existing loan assets and borrowings) opting for conversion into bank may not be able to meet with Exposure Norms on Day 1 (of converting into bank). Phase wise implementation of the norms especially with regard to priority sector lending, CRR, SLR etc. may be specified. Alternatively, it may be specified that exposure norms be made applicable to new lending / borrowing / exposure of the bank +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.365. In case of conversion of NBFC int bank, will the priority sector lending targets apply only to new loans issued after commencement of banking operations? Or will they also apply to existing portfolio? In such case, will they get a time window to meet the priority sector targets? +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.366. If a new bank is formed by transferring to the existing business being undertaken by one or more financial entities in a Group, will the RBI provide some length of time for the new bank to comply with: (i) Priority sector lending targets and sub-targets? (ii) Capital market exposure norms? (iii) Single and Group borrower limits? (iv) Intra-Group exposure limits? (v) CRR and SLR requirements (vi) Provisioning norms? +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.367. Large existing NBFCs applying for a banking license that, as per the Guidelines, will need to transfer their assets to the Bank will find it very difficult to meet PSL requirements immediately from the date of commencement of operations of the Bank. Could a bank that commences operations with a large asset book transferred from the sponsoring NBFC entity be granted forbearance for up to a period of say five years to be fully compliant with PSL requirements? Please clarify. +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.368. NBFC applicants for a bank license that have large existing borrowings in the form of Bonds/ ECBs may not be compliant with extant banking guidelines. If such an NBFC were allowed to convert into a bank or transfer its assets and liabilities into a new Bank, could the legacy borrowings of the NBFC be grandfathered till maturity in the Bank? Please clarify. +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.369. What would be the status of activities that are permitted in the bank with restrictions (such as loans against shares) or not permitted (such as promoter financing, loans for purchase of land)? Can such activities continue to be conducted in a group NBFC? +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.370. Similarly for businesses likely to cause asset liability mismatches (infrastructure, large asset book), is there any exception? Will extra time be given for complying with CRR/SLR requirement? Will PSL be applied on the basis of existing book to be migrated from the NBFC or on the basis of the new assets? +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.371. Since NOFHC shall only hold investments in financial services entities in the group, it may breach exposure limits for such entities. RBI may clarify that these limits shall not be applicable to investments by the NOFHC in financial services entities that belong to the Promoter Group. +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.372. In case of the transfer of the existing activities (which can be undertaken departmentally by the bank) of the NBFC, will the RBI permit the conversion of all the existing Tier 1 branches / locations to bank branches. What will happen to the Tier 1 branches which are not allowed to be converted to bank branches? +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.373. Is the new bank required to meet priority sector lending (‘PSL’) targets on its entire opening loan assets portfolio from the year of commencement of operations? +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.374. Does the RBI intend to grant a time bound programme to adhere to PSL target on the stock of loan asset portfolio acquired by the bank from the NBFC? +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.375. Would NOFHC get some time to comply with the capital adequacy norms at consolidated level? +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.376. Would financial services entities held by the NOFHC get some time to comply with the capital adequacy norms, on a standalone basis? +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks

Q.377. If the foreign shareholding in an operational NBFC currently exceeds 49 per cent within the currently allowed limit of 74 per cent, we would assume that it will be given a forbearance window for bringing this down below the stipulated 49 per cent? +

Clarifications on queries relating to regulatory forbearance and transition issues (360-422)

a) CRR and SLR requirements

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

No forbearance for maintenance of CRR and SLR will be granted by RBI, as these are statutory requirement for the banks.

b) Priority Sector Lending (PSL)

c) Prudential/Exposure Norms

No regulatory forbearance would be granted to the new banks in respect of prudential/ exposure norms.

d) Branch Authorization Norms

The guidelines [para 2(L)] lay down the requirement very clearly.

e) FDI in the new banks

The ECB/FCCB liabilities for the purpose of transfer to the new bank should be frozen as on the date of in-principle approval for setting up a new bank;
The liabilities under ECB/FCCB that would be transferred to the new bank together with other forex borrowing should not exceed 50 per cent of its Tier I capital;
In case these borrowings exceed the limit of 50 per cent of Tier I capital due to grandfathering of ECB/FCCB, no further borrowing would be permitted till the aggregate borrowings are brought within the regulatory limit.
In order to protect the interests of the depositors of the new bank, while allowing grandfathering of term borrowings and other secured liabilities taken over from NBFCs, RBI will impose additional capital charge on the new bank, where it would allow creation/ continuation of floating charges on the assets of the new bank.

g) Capital adequacy for the NOFHC

RBI would not provide any time window to comply with the capital requirement at the consolidated level. No regulatory forbearance would be granted in this regard.

h) Tax issues

The matter falls outside the purview of RBI. The tax laws as prescribed by the tax authorities would have to be adhered to.

i) Delay in grant of approvals

In genuine cases of delay in granting approval by regulators / Government, RBI may consider granting extension of time for operationalising the bank.

j) Reorganization of business and transfer of assets and liabilities to the new banks

f) Transfer of ECB and term borrowings/bonds from other entities to banks