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Panel to evaluate applications for Universal Banks, Small Finance Banks

Topics Covered: Inclusive growth and issues arising from it.

Panel to evaluate applications for Universal Banks, Small Finance Banks:


Context:

The Reserve Bank of India (RBI) has announced the creation of a Standing External Advisory Committee under the chairmanship of Shyamala Gopinath for evaluating applications for Universal Banks and Small Finance Banks.

  • This is part of the central bank’s earlier announced plan to give banking permits on a continuous basis to candidates, a process that is is commonly known as ‘on-tap’ licensing.

What is On tap licensing?

It means the RBI window for granting banking licences will be open throughout the year.

What is Universal banking?

It is a system of banking where banks undertake a blanket of financial services like investment banking, commercial banking, development banking, insurance and other financial services including functions of merchant banking, mutual funds, factoring, housing finance, insurance etc.

RBIs universal bank licensing guidelines:

  1. Individuals/professionals who are ‘residents’ and have minimum 10 years of experience in banking and finance at a senior level.
  2. The initial minimum paid-up voting equity capital for a bank shall be ` five billion. Thereafter, the bank shall have a minimum net worth of ` five billion at all times.
  3. The requirement of Non-Operative Financial Holding Company (NOFHC) is not mandatory for individual promoters or standalone promoting/converting entities who/which do not have other group entities.
  4. Not less than 51% of the total paid-up equity capital of the NOFHC shall be owned by the Promoter/Promoter Group. No shareholder, other than the promoters/promoter group, shall have significant influence and control in the NOFHC.
  5. The bank shall get its shares listed on the stock exchanges within six years of the commencement of business by the bank.
  6. The bank is precluded from having any exposure to its promoters, major shareholders who have shareholding of 10 per cent or more of paid-up equity shares in the bank, the relatives of the promoters as also the entities in which they have significant influence or control.
  7. The bank has to open at least 25 per cent of its branches in unbanked rural centres.
  8. The bank shall comply with the priority sector lending targets and sub-targets as applicable to the existing domestic scheduled commercial banks.
  9. The board of the bank should have a majority of independent directors.
  10. The validity of the in-principle approval issued by the Reserve Bank will be 18 months from the date of granting in-principle approval and would thereafter lapse automatically.

InstaLinks:

Prelims Link:

  1. NBFCs- meaning.
  2. Types.
  3. NBFCs under RBI.
  4. NBFC-MFI- eligibility, functions.
  5. What is Net Owned Funds?
  6. What are Qualifying Assets?
  7. What are small finance banks.
  8. Differences between NBFCs, SFBs and Payment Banks.

Mains Link:

Discuss the significance of NBFC-MFIs (microfinance institutions).

Sources: the Hindu.