RBI Issues Guidelines for “On Tap” Licensing of Private Universal Banks

In
the past, the Reserve Bank of India (RBI) has been following a “stop and go”
policy for licensing of new banks in the private sector. Under this policy, and
on the last occasion in 2014, two private sector banks were granted licences to
operate banks. However, this policy has been under review and discussion over the
last few years. Consequently, the RBI in May this year issued the Draft
Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector
.
A guest contributor previously analysed
various aspects
of these Draft Guidelines on this Blog.

Yesterday,
the RBI issued the final version in the form of the
Guidelines
for ‘on tap’ Licensing of Universal Banks in the Private Sector
. The final
guidelines are essentially on the same lines as the draft issued in May. This development
is likely to constitute a significant change in the private sector banking
industry. Unlike the previous policy wherein the RBI would open up the
possibility of licensing banks during specific windows, the new policy will
enable banks to submit applications for licensing on an ongoing basis. However,
this is subject to significant restrictions, which will also preclude
conglomerates from venturing into the banking industry, and is largely aimed at
enabling other financial services players such as non-banking finance companies
in their entry into the universal banking sectors.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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