MUMBAI: The Reserve Bank of India on Monday released on its website, the Draft Guidelines for "Licensing of New Banks in the Private Sector". The Reserve Bank has sought views/comments on the draft guidelines from banks, non-banking financial institutions, industrial houses, other institutions and the public at large by October 31, 2011.
Final guidelines will be issued and the process of inviting applications for setting up of new banks in the private sector will be initiated. After receiving feedback, comments and suggestions on the draft guidelines, and after certain vital amendments to Banking Regulation Act, 1949 are in place.
Key features of the draft guidelines are:
(i) Eligible promoters: Entities / groups in the private sector, owned and controlled by residents, with diversified ownership, sound credentials and integrity and having successful track record of at least 10 years will be eligible to promote banks. Entities / groups having significant (10 per cent or more) income or assets or both from real estate construction and / or broking activities individually or taken together in the last three years will not be eligible.
(ii) Corporate structure: New banks will be set up only through a wholly owned Non-Operative Holding Company (NOHC) to be registered with the Reserve Bank as a non-banking finance company (NBFC) which will hold the bank as well as all the other financial companies in the promoter group.
(iii) Minimum capital requirement: Minimum capital requirement will be Rs 500 crore. Subject to this, actual capital to be brought in will depend on the business plan of the promoters. NOHC shall hold minimum 40 per cent of the paid-up capital of the bank for a period of five years from the date of licensing of the bank. Shareholding by NOHC in excess of 40 per cent shall be brought down to 20 per cent within 10 years and to 15 per cent within 12 years from the date of licensing of the bank.
(iv) Foreign shareholding: The aggregate non-resident shareholding in the new bank shall not exceed 49 per cent for the first 5 years after which it will be as per the extant policy.
(v) Corporate governance: At least 50 per cent of the directors of the NOHC should be independent directors. The corporate structure should be such that it does not impede effective supervision of the bank and the NOHC on a consolidated basis by the Reserve Bank.
(vi) Business model: Should be realistic and viable and should address how the bank proposes to achieve financial inclusion.
(vii) Other conditions:
The exposure of bank to any entity in the promoter group shall not exceed 10 per cent and the aggregate exposure to all the entities in the group shall not exceed 20 per cent of the paid-up capital and reserves of the bank.
The bank shall get its shares listed on the stock exchanges within two years of licensing.
The bank shall open at least 25 per cent of its branches in unbanked rural centres (population upto 9,999 as per 2001 census)
Existing NBFCs, if considered eligible, may be permitted to either promote a new bank or convert themselves into banks.
(viii) In respect of promoter groups having 40 per cent or more assets/income from non-financial business, certain additional requirements have been stipulated.
FAQs
The Reserve Bank on Monday raised the minimum capital requirement for small finance banks to Rs 200 crore and permitted Payments Bank to upgrade as SFBs. Incidentally, the net worth of all SFBs currently in operation is in excess of Rs 200 crore.
How much capital is required for opening a bank in India? ›
Mumbai: The Reserve Bank of India (RBI) on Monday unveiled the draft guidelines on new banking licences pegging the minimum required capital to set up a bank by a corporate at Rs500 crore while limiting the foreign shareholding at 49%, reports PTI. "The minimum capital requirement will be Rs500 crore.
What is the minimum capital required for a bank? ›
In the U.S., adequately capitalized banks have a tier 1 capital-to-risk-weighted assets ratio of at least 4.5%. Capital requirements are often tightened after an economic recession, stock market crash, or another type of financial crisis.
What is the minimum capital requirement of a bank according to the banking Regulation Act? ›
The Reserve Bank of India's (RBI) paid-up capital and reserves may not be less than 15 lakhs of rupees in the case of a banking company incorporated outside India, or 20 lakhs if it has a place or places of business in the cities of Bombay or Calcutta.
What are the RBI guidelines for capital adequacy norms? ›
Capital Adequacy requirements
Subordinated debt as Tier-II Capital should not exceed 50 per cent of Tier-I capital. The total of Tier-III Capital, if any, shall not exceed 250 per cent of the Tier-I Capital that is available for meeting market risk capital charge i.e. excess over the credit risk capital requirements.
What is the minimum authorized capital requirement? ›
The Revised Corporation Code has removed the prescribed minimum paid-up capital requirement of PHP5,000. However, for certain corporations regulated by special laws which prescribe a minimum capitalization, such minimum capitalization will continue to apply.
What is the minimum capital adequacy for banks? ›
Highlights of Capital Adequacy Ratio (CAR)
CAR ensures that a layer of safety is present for the bank to manage its own risk weighted assets before it can manage its depositors' assets. Indian public sector banks must maintain a CAR of 12% while Indian scheduled commercial banks are required to maintain a CAR of 9%.
What are the new capital requirements for the Federal Reserve? ›
The minimum capital requirement, which is the same for each firm and is 4.5 percent; The stress capital buffer requirement, which is determined from the stress test results, and is at least 2.5 percent; and.
What are Tier 1 and Tier 2 capital requirements for banks? ›
The capital reserve ratio for a bank is prescribed at 8%. It stands at 6% for Tier 1 capital and the balance 2% for Tier 2 capital. Usually, a bank's capital ratio is calculated by dividing its capital by its total risk-based assets.
Why do bank regulators set minimum capital standards? ›
Regulators set requirements on minimum capital to ensure financial institutions can absorb unexpected losses in their business. This is a core tool of prudential regulation and also supports system-level financial stability.
The bank's paid-up capital and raised funds must be at least Rs. 5 lakh to qualify as a scheduled bank.
What is the minimum capital requirement for payment bank? ›
Features of Payment Banks
It needs to have a minimum paid-up capital of Rs. 100,00,00,000. Minimum initial contribution of the promoter to the Payment Bank to the paid-up equity capital shall at least be 40% for the first five years from the commencement of its business.
What is the minimum capital ratio requirement? ›
The capital adequacy ratio is calculated by dividing a bank's capital by its risk-weighted assets. Currently, the minimum ratio of capital to risk-weighted assets is 8% under Basel II and 10.5% (which includes a 2.5% conservation buffer) under Basel III.
What is the minimum capital requirement for payment banks in India? ›
Features of Payment Banks
It needs to have a minimum paid-up capital of Rs. 100,00,00,000. Minimum initial contribution of the promoter to the Payment Bank to the paid-up equity capital shall at least be 40% for the first five years from the commencement of its business.
What is the minimum risk capital requirement? ›
Risk-based capital requirements are minimum capital requirements for banks set by regulators. There is a permanent floor for these requirements—8% for total risk-based capital (tier 2) and 4% for tier 1 risk-based capital. Tier 1 capital includes common stock, reserves, retained earnings, and certain preferred stock.
What is the minimum capital requirement for trading? ›
There is no minimum amount that you need to trade in the stock market. India has two main stock exchanges—the Bombay Stock Exchange and the National Stock Exchange. Stock prices range between ₹1 to ₹75,000. You can buy any stock in any quantity.
