The Reserve Bank pf India had earlier constructed an Internal Working Group under P K Mohanty. The committee was set up to review ownership guidelines of Indian private sector banks. The committee has submitted a report about the bank licensing in India
Key Recommendations
- Large industrial houses and corporates shall be allowed as promoters of banks. However, this is possible only after making required amendments to the Baking Regulations Act, 1949.
- Well established Non-Banking Finance Corporations with an asset size of Rs 50,000 crores and above shall be considered for conversion into banks.
- The committee has recommended a 3-year operational time for a Payment Bank to be converted into a Small Finance Bank. Currently, the Payment banks can apply for conversion into small finance banks only after five years of operation.
- Non-Operative Financial Holding company shall be continued as a preferred structure to issue new licenses.
Background
In June, 2020, the Reserve Bank of India had set up Mohanty Panel to review the ownership of private sector banks. It examined the regulations to hold financial subsidiaries through non-operative financial holding company.
What are Small Finance Banks?
Small Finance Banks offer basic banking services. They are allowed to provide loans to underserved and unserved sections of the society. On the other hand, the Payment Banks are not allowed to lend.
What are NOFHC?
NOHFC falls under the category of Non-finance banking company. They are governed by the RBI with separate set of guidelines. The main objective of the NOHFC is to separate financial activities carried out by same financial company.
What are Non-Banking Financial Companies?
According to Reserve Bank of India, a Non-Banking Financial Company is engaged in acquisition of shares, business of loans, securities issued by Government. They are registered under Companies Act, 1956.