Corporates with sound credentials can set up banks: RBI

It is 41 per cent in case of developing economies.

Following the grant of licence, the promoter group, which could be a public sector entity as well, will be required to set up a wholly-owned Non-Operative Financial Holding Company (NOFHC).

The NOFHC is aimed at protecting the banking operation from extraneous factors like other business of the Group i.e., commercial, industrial and financial activities not regulated by financial sector regulators.

To ally fears of conflict of interest that may arise if a corporate entity opens up a bank, the notification said: "The RBI will have to be satisfied that the corporate structure does not impede the financial services entities held by the NOFHC from being ring-fenced, that it would be able to supervise the bank, the NOFHC, and its subsidiaries/joint ventures/associates on a consolidated basis...."

Existing non-banking financial company (NBFC) will be eligible to apply for a bank licence.

If considered eligible, NBFCs may be permitted to promote a new bank or convert themselves into banks, it said.

According to norms, the business plan has to be realistic and viable and should address how the bank proposes to achieve financial inclusion.

The new entity will have to comply with the priority sector lending targets and sub-targets as applicable to the existing domestic banks, it said.

Banks promoted by groups having 40 per cent or more income from non-financial business will require RBI's prior approval for raising paid-up voting equity capital beyond Rs 1,000 crore for every block of Rs 500 crore.

The guidelines said the NOFHC will hold the bank as well as all the other financial services entities of the group regulated by RBI or other financial sector regulators.

"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," it said.

... contd.

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