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RBI allows Corporates to enter Banking Sector

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Finally, corporate houses can also enter to the banking sector in India. The Reserve Bank of India (RBI) announced new rules in this regard in lieu of which, the private and non-banking finance firms are now allowed to open their new banks.

However, to avail the new bank license, the corporate and public sector entities should have certain eligibility criteria like – They should have credentials and a minimum track record of 10 years to enter the banking business.

Private sector companies, public sector groups and non-banking finance companies are eligible to apply for new bank licenses by July 1 and on receipt of license, promoter has to start operations within one year and list the company within three years of commencement of the business.

Also, the new banks should open at least 25 % of the branches in unbanked rural pockets and the minimum equity capital required for setting up a bank under the new rules is Rs. 500 crore. Also, foreign shareholding should not exceed 49 per cent in the first five years.

Before granting licences, RBI would seek feedback about applicants from other regulators, enforcement, investigative agencies like I-T Department, CBI, and ED, as deemed appropriate.

The recent declaration now makes eligible Indian Corporate giants like Anil Dhirubhai Ambani Group, Larsen & Toubro, Tatas, Mahindra and Mahindra, Life Insurance Corporation and Aditya Birla Group etc. to enter to the banking sector.

The RBI guidelines further require that at least half of the directors must not be connected to the founder groups.

The last time a new player entered the business was Yes Bank in 2004, as the RBI had kept strict rules regarding providing license for banking sector in the interest of depositors.  The new rule has also made eligible categories like brokerages and real estate companies to enter into the banking sector.

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