The guidelines stipulate: “entities in the private sector owned and controlled by residents with diversified ownership, sound credentials and integrity and having a successful track record of at least 10 years will be eligible to promote banks”. On the face of it, that clause should instantly rule out many business houses hoping to float a bank, including the Tatas, Anil Ambani’s Reliance, Religare Enterprises, Aditya Birla Group and Bajaj Financial Services. Since all of these are promoted by one promoter group, they may not meet the “diversified ownership” condition, feel industry experts.

The bigger surprise is that broking firms have been excluded from the list as well. According to the draft, “entities/groups having significant (10% or more) income or assets or both from real estate construction and /or broking activities individually or taken together in the last three years will not be eligible”. This effectively rules out groups such as Indiabulls, Edelweiss and Bajaj FinServe.
         
    Broking firms have been excluded from the list of banking-hopefuls.    
         

“These entities will probably have to restructure their businesses and ownership to become eligible for a licence,” says Pavan Kumar Vijay, Managing Director of Corporate Professionals, a consultancy, and past president of the Institute of Company Secretaries of India. However, Viren H Mehta, Director, Ernst & Young India, differs. “If the overall group exposure is above 10%, then a restructuring may not work,” he says.


Although the capital requirement has been pegged at Rs 500 crore, which appears conservative, the stringent norms could mean that there aren’t too many contenders with that kind of capital. In any case, there will be challenges galore for any new banks. They will have their work cut out to negate the early-mover advantage of the existing ones. Also, they will have to comply with a capital adequacy ratio (CAR) of 12% as compared to 9% for existing ones. Some of these business challenges may get accentuated by the tough licensing conditions.
As things stand, L&T Finance Holdings and Srei Infrastructure Finance are among the few private companies that seem to qualify for a licence.

But these are still draft guidelines. They are up for feedback from the public and interested entities until October 31, after which suitable amendments will be made and final guidelines issued. Some of the norms may well change when that happens.