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Although work of Bank and NBFCs is almost the same but there is some difference or work which can be conducted only by bank and there are some allowances which are given to Bank i.e. following activities can only undergo by Bank:-
1. Acceptance Of Deposits
2. Issue of Cheques Drawn and being a part of the payment and settlement system.
3. It facilitates Deposit Insurance Facility of Deposit Insurance as well as credit guarantee corporation.
FAQ's On Conversion Of NFBC Into Bank
How Bank is Different From NBFC?
Legal Norms for converting NBFC into Bank ?
While NBFCs are seen as one of the key contenders to receive the Banking regulators green signal to foray in the Banking space, where some finds it difficult and may face challenges to meet the criteria to convert them into a Bank.
Following are the conditions which needs to be fulfilled before conversion of NBFC into Bank ?
1. The minimum paid up capital for new Bank shall be Rs. 200 Crore. The initial capital can be raised upto Rs. 300 crore within three years of commencement of business.
2. The minimum promoters’ contribution shall be 40 percent of the paid up capital of the Bank.
3. The initial capital can be raised by public issue or private placement , which is apart from Promoters
4. While expanding capital to Rs. 300 Cr. within three years of commencement of business, promoters necessarily have to bought additional capital which should be 40 % or fresh capital raised
5. Once from the date of receipt of capital from the bank , Capital should get lockeed for minimu period of 5 years.
6. The new Bank should not be sponsored by a large Industrial house. Though individual companies directly or indirectly connected with large Industrial houses may be allowed to participate in the equity of the new Private Bank upto a maximum of 10 percent who will have controlling interest in the Bank.
7. The arms length relationship should be maintained by proposed bank with other buisness entetaties who are present in promoter group as well as individual/ company who is investing more than 10 % of stipulated equity
8. The relationship among business entity in the Promoters group and the proposed bank shall be of like between two independent and unconnected activities.
2. The minimum promoters’ contribution shall be 40 percent of the paid up capital of the Bank.
3. The initial capital can be raised by public issue or private placement , which is apart from Promoters
4. While expanding capital to Rs. 300 Cr. within three years of commencement of business, promoters necessarily have to bought additional capital which should be 40 % or fresh capital raised
5. Once from the date of receipt of capital from the bank , Capital should get lockeed for minimu period of 5 years.
6. The new Bank should not be sponsored by a large Industrial house. Though individual companies directly or indirectly connected with large Industrial houses may be allowed to participate in the equity of the new Private Bank upto a maximum of 10 percent who will have controlling interest in the Bank.
7. The arms length relationship should be maintained by proposed bank with other buisness entetaties who are present in promoter group as well as individual/ company who is investing more than 10 % of stipulated equity
8. The relationship among business entity in the Promoters group and the proposed bank shall be of like between two independent and unconnected activities.
Conversion of NBFCs into a Private Sector Banks
The following criteria should be clarified and they are follows-
1. The minimum paid up capital for new Bank shall be Rs. 200 Crore. The initial capital can be raised upto Rs. 300 crore within three years from the date of conversion.
2. Large industrial house or owned or controlled by public authorities ( local / state or central government) should promote NBFC .
3. Credit rating of NBFC should not be less than AAA rating ( or its equivalent) in the previous year.
4. Impeccable track record should be there of NBFC which should also be in compliance with RBI regultions/ directions and at the same time no defalut should have been reported .
5. The NBFC wishing to convert it into a Bank should have a capital adequacy of not less than 12 percent and net NPA of not more than 5 percent.
6. The NBFC on conversion of a Bank will have to comply with a capital Adequacy Ratio and all other eqirement such as such as Lending to priority sector, promoters contribution, lock in period for promoters stake, NRI and Foreign equity participation, arms length relationship etc as applicable to banks.
1. The minimum paid up capital for new Bank shall be Rs. 200 Crore. The initial capital can be raised upto Rs. 300 crore within three years from the date of conversion.
2. Large industrial house or owned or controlled by public authorities ( local / state or central government) should promote NBFC .
3. Credit rating of NBFC should not be less than AAA rating ( or its equivalent) in the previous year.
4. Impeccable track record should be there of NBFC which should also be in compliance with RBI regultions/ directions and at the same time no defalut should have been reported .
5. The NBFC wishing to convert it into a Bank should have a capital adequacy of not less than 12 percent and net NPA of not more than 5 percent.
6. The NBFC on conversion of a Bank will have to comply with a capital Adequacy Ratio and all other eqirement such as such as Lending to priority sector, promoters contribution, lock in period for promoters stake, NRI and Foreign equity participation, arms length relationship etc as applicable to banks.
Other Requirement to be followed for conversion of NBFC into Bank ?
1. The Bank shall maintain a minimum adequacy ratio of 10 percent on a continuous basis.
2. The new Bank have to witness priority sector lending target of 40 percent of net bank credit as applicable to other domestic banks.
3. The new Bank will be required to open 25 percent of its Branches in Rural or Semi-urban areas.
4. The new Bank shall not be permissible to set up a subsidiary or mutual fund for at least three years fro the date of commencement of business.
6. The headquarters of the proposed new Bank can be present in anywhere in India by promoters
7. The new bank shall be governed by the provision of Banking Regulation Act, 1949, Reserve Bank of India, 1934, other relevant statutes and regulations of SEBI regarding public issue and other guidelines applicable to listed Banking Companies.
2. The new Bank have to witness priority sector lending target of 40 percent of net bank credit as applicable to other domestic banks.
3. The new Bank will be required to open 25 percent of its Branches in Rural or Semi-urban areas.
4. The new Bank shall not be permissible to set up a subsidiary or mutual fund for at least three years fro the date of commencement of business.
6. The headquarters of the proposed new Bank can be present in anywhere in India by promoters
7. The new bank shall be governed by the provision of Banking Regulation Act, 1949, Reserve Bank of India, 1934, other relevant statutes and regulations of SEBI regarding public issue and other guidelines applicable to listed Banking Companies.
Procedure for Application for conversion for NBFC into Bank ?
1. The application shall be prepared and submitted in the prescribed form.
2. The applicaiton should be made in a way that it should be accompanied with project report which covers all business potential and viability of proposed banks as well as product lines , capability as per tchnology and other information as may be required from time to time
3. The detailed information on the background of promoters, their expertise, the track record of business and financial worth, details of promoters, direct and indirect interest in various companies or industries, details of proposed participation by Foreign Banks/ NRI/ OCB shall be furnished.
4. Licenses will be issued on a selective basis to those who conform to the requirements stated by RBI and who are likely to conform to the best international and domestic standards of customer service and efficiency.
5. After receiving an application, same will be screened by RBI to ensure prima facie eligibility of the applicants and will be referred to a high level advisory committee to be set up bt RBI.
6. The committee will screen the applicants by the procedure set up by them.
7. The decision to issue an in-principle approval for setting up of a Bank will be taken by RBI which will be final.
8. The in-principle approval issued by RBI is valid for a period of one year from the date of granting in-principle approval and subsequently would lapse automatial.
9. After issuance of everything if any contrary feature is observed the RBI of India may impose additional conditions and if warranted it may withdraw the in-principle approval.
2. The applicaiton should be made in a way that it should be accompanied with project report which covers all business potential and viability of proposed banks as well as product lines , capability as per tchnology and other information as may be required from time to time
3. The detailed information on the background of promoters, their expertise, the track record of business and financial worth, details of promoters, direct and indirect interest in various companies or industries, details of proposed participation by Foreign Banks/ NRI/ OCB shall be furnished.
4. Licenses will be issued on a selective basis to those who conform to the requirements stated by RBI and who are likely to conform to the best international and domestic standards of customer service and efficiency.
5. After receiving an application, same will be screened by RBI to ensure prima facie eligibility of the applicants and will be referred to a high level advisory committee to be set up bt RBI.
6. The committee will screen the applicants by the procedure set up by them.
7. The decision to issue an in-principle approval for setting up of a Bank will be taken by RBI which will be final.
8. The in-principle approval issued by RBI is valid for a period of one year from the date of granting in-principle approval and subsequently would lapse automatial.
9. After issuance of everything if any contrary feature is observed the RBI of India may impose additional conditions and if warranted it may withdraw the in-principle approval.
