On August 29, 2011, the Reserve Bank of India released its much-awaited draft guidelines for new banking licences, with the basic message that it is looking for companies with diversified ownership and less exposure to risky business such as broking and real estate.
The guidelines had been under discussion for more than a year. These allow business houses with successful track record and a minimum capital of Rs 500 crore to set up commercial banks. The draft also spelt out the framework for converting non-banking financial companies into banks.
The RBI has suggested a 49% limit on foreign shareholding and a two-year deadline to list shares for new banks.
According to the draft, new banks’ total exposure to their founding groups should be limited to 20%, with the exposure to a single entity capped at 10%.
Activities such as real-estate and broking, “apart from being inherently riskier, represent a business model and business culture which are quiet misaligned with a banking model,” said the central bank, which has historically been cautious about opening up the sector to more players due its apprehensions on controlling bad loans.
These conditions may make it difficult for keen aspirants such as Religare Enterprises Ltd., Indiabulls Financial Services Ltd. and Reliance Capital Ltd. to qualify, analysts said.
Companies like Larsen & Toubro Ltd., Mahindra & Mahindra Financial Services Ltd., with a reasonably diversified shareholding, have a fair chance to gain banking licenses.
The last time India issued a banking license was in 2004, to Yes Bank Ltd.
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