Breather for bank aspirants

Mumbai, June 3: Companies will get more time to set up a bank, with the RBI today extending the validity of the in-principle approval for new banks to 18 months from one year. This means an aspirant will have to set up a bank within 18 months from the date of the in-principle approval, failing which the application will lapse.

The relaxation comes as part of a long list of clarifications issued by the Reserve Bank to various queries on new bank licences. On February 22, the RBI issued the final guidelines for issuing new licences, and it had received around 443 queries from 39 entities.

The RBI said: “The queries received from intending applicants brought out several complex issues pertaining to re-organisation of the existing corporate structure, restructuring of businesses and meeting the regulatory requirements.

“The RBI has been requested to clarify as to whether it would provide more time for a smooth transition from the existing structures to that prescribed in the guidelines as also for meeting the regulatory requirements. It has, therefore, been decided to extend the validity period of the in-principle approval from one year to 18 months,” the apex bank said.

The apex bank’s licensing norms require entities to set up a non-operative financial holding company (NOFHC), which will hold stake in the new bank. The NOHC will also hold stakes in other regulated financial services entities of the group. This means it can hold stakes in other businesses as well such as asset management and insurance.

However, the RBI has left it to the discretion of the other regulators — Sebi and IRDA — on whether the specific businesses they oversee should come under the NOHC or not.

For instance, IRDA rules say an insurance company cannot be a subsidiary of another company, while the Reserve Bank wants the NOFHC to have all the financial interests of the promoter group under its arm.

In this case, the applicants having an interest in the insurance sector will have to approach the IRDA and the latter’s decision will prevail.

“The general principle is that the regulated financial services sector entities in which a promoter group has ‘significant influence’ or ‘control’ will be held under the NOFHC. While this is a preferred structure, these requirements are subject to the regulations of the respective regulators,” the RBI said.