Monday, September 5, 2011

Cautious approach to new banks

  • Before 1969, many leading banks were owned or controlled by leading business groups
  • In a two-stage process that began in 1969, the government nationalised these banks
  • case for the takeover was built on the ground that these banks were serving their private promoters' interests
  • Rbis latest proposal suggests that 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 ten years will be eligible to promote banks.
  • Eligible promoters
    1. barred groups having even an exposure of 10 per cent (by way of assets or income or both) in real estate and/or broking activities over the past three years.
  • Corporate structure
    1. a wholly-owned non-operative holding company (NOHC), which will be registered with the RBI as a non-banking finance company
    2. Idea is to ring fence the financial interests of the group from its other business activities
  • minimum capital requirement will be Rs.500 crore
    1. NOHC will hold a minimum 40 per cent of the capital for five years from the date of licensing.
    2. aggregate non-resident shareholding will not exceed 49 per cent for the first five years.
  • At least 50 per cent of the directors of the NOHC should be independent directors.

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