RBI Sets Guidelines For 'Wannabe' Private Banks Entering Indian Market

The dream of serving 1.2 billion potential customers is on the minds of many a firm, India has been slow to open up its economy to foreign investors and the recent FDI discussions haven’t been clear for overseas firms. The country’s central bank announced clear guidelines on the future of banking in India as it outlines the criteria for new private banks looking to get licensed.

The guidelines state that foreign firms will be capped at 49% and a minimum paid up capital of INR 500 CR (USD $9.2 million). The new guidelines give confidence to non-banking corporates who may want to enter the market. It continues to state that entities or groups in the private sector, entities in public sector and Non-Banking Financial Companies (NBFCs) shall now be eligible to set up a bank through a wholly-owned Non-Operative Financial Holding Company (NOFHC).

Firms who want to apply for the license should be wholly owned by the Promoter / Promoter Group. The bank can later get its shares listed on the stock exchanges within three years of the commencement of business by the bank. RBI said it will allow applications for new bank licences until July 1, 2013, and in its statement.

India has a diverse banking sector, there are 88 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake.

The Indians rupee has still a long way to go before it gets international coverage, it currently trades only 4% of daily FX pairs. India allows corporates to use currency and coupon swap transactions to hedge their X exposure on long-term foreign currency loans.