Description
familiarize with the legal requirements in setting up & conducting banking business in India. It also explains the licensing requirements for foreign banks.
?
To familiarize with the legal requirements in setting up & conducting banking business in India
?
To establish a commercial bank/ branch to whom do we have to make an application?
?
To establish a commercial bank/ branch to whom do we have to make an application?
? Application to RBI in prescribed format
?
?
Under Sec 22 of BRA, it is a must to obtain a licence from RBI. Exceptions?
?
Exceptions?
? Public Sector Banks ? Regional Rural Banks ? Because they are established under some special enactment
?
Information required:
? ? ? ? ? ? ?
Promoter/ promoter group Source of capital Professional management support Geographical area to be serviced Business mix Types of economic activities to be financed Profitability of operations
?
After sifting through the above information, RBI may grant license to the firm if it is in public interest.
?
It would stipulate:
? ? ? ?
? It should not be prejudicial to the stability and consolidation of the banking system Place of business Area of operations Minimum capital requirement CEO
?
Factors considered?
?
Factors considered:
? Geographic coverage ? Economic viability ? Logistic support
?
What other non BRA and RBI permissions are required to open branches?
?
What other non BRA and RBI permissions are required to open branches?
? Local authorities permissions ? Shop & establishment license
?
?
Each branch is required to display name and address of the registered office Branches of PSBs are required to display names, addresses and telephone numbers of their respective controlling authorities
?
?
Relocation/ merger/ closure of branches in metropolitan/ urban area can be carried out by Banks – just report to RBI Specific permission for whom?
?
Specific permission for closure of branches in rural areas
?
All Forex business – including acceptance of NR Forex deposits at specific branches require prior permission of RBI
?
Capital Market activities like:
? Securities Depository (holding shares in demat form on behalf of customers) ? Merchant Banking
?
Require registration with SEBI
? ?
Allowed to operate through branches only Test & entry criteria – same as above
?
In addition, what does the RBI looks into?
?
In addition:
? ? ? ? ? Dealings with Indian parties International & home country rating International presence Economic & trade relations with home country Supervisory standards prevalent in home country
?
RBI insists from on prior consent of the home country regulator. Why?
?
RBI insists from on prior consent of the home country regulator. Why?
? To ensure that the laws of the home country do not discriminate in any way against banks incorporated in India.
?
Minimum capital requirement?
?
Minimum capital requirement?
? Minimum assigned capital of USD 50 million ? Required to maintain minimum capital adequacy ratio of ____%
?
Minimum capital requirement?
? Minimum assigned capital of USD 50 million ? Required to maintain minimum capital adequacy ratio of 9% on aggregate risk weighted assets of their Indian operations
?
Representative Offices
? They too have to get home regulator’s consent – as it is construed to be an entry of a bank
?
?
Prior approval of RBI required for setting up a branch or subsidiary abroad Factors considered?
?
Factors considered:
? Importance of country as a centre of International Finance ? India’s trade with that region/ country ? Investment in country concerned ? Size of Indian population ? Size of expatriates in India ? Prevailing local laws ? Exchange control regulations, etc.
?
What is RBI requirement?
?
?
What is RBI requirement? RBI requires that:
? Any transfer of shares in banking industry exceeds 5% has to acknowledged by RBI before acceptance of transfer in books ? While seeking acknowledgement, the bank has to give declaration that the proposed transferee is not likely to acquire, either singly or along with the companies concerns in a group, a controlling interest in the bank.
?
?
Banks are allowed to set-up subsidiaries and make significant investments only in companies that are undertaking authorised under sec 6(1) of BRA. Why is this?
?
Why is this?
? To ensure that the banks form subsidiaries only in financial services sector and this requires prior approval of RBI. ? RBI applies the same tests and checks the viability before granting permission
?
How much shareholding can the Bank have?
?
How much shareholding can the Bank have?
? Under Sec 19(2) of BRA shareholding by banks as whether pledgee, mortagee, or absolute owner in other companies cannot exceed 30% of the paid up capital of the respective companies or 30% of their own paid-up share capital, whichever is less ? Investments in services company is subject to a ceiling of 10% of the bank’s paid-up capital & reserves ? Aggregate investment in all subsidiaries not to exceed 20% of the bank’s paid up capital
?
How should the relationship between the Bank and the subsidiary be?
?
?
How should the relationship between the Bank and the subsidiary be? RBI insists on a arms length relationship between the bank and the subsidiaries.
?
?
RBI can supervise the subsidiaries as they are registered as NBFCs Capital market related activities are under the functional regulation of SEBI
?
How much can the Bank invest in equity?
? ?
How much can the Bank invest in equity? In case of investment in equity of nonfinancial services company, investment should not exceed 5% of the incremental deposits of the previous year
?
What functions does RBI control?
?
RBI controls functions like:
? ? ? ? Branch license Area of operation Exposure norms Interest rates, etc.
?
Government controls which functions?
?
Government controls functions like:
? ? ? ? ? Incorporation Registration Management audit Amalgamation Liquidation/ winding up
?
?
Those not classified under Grade II/III/IV by RBI, may apply for allotment of centres under the Annual Action Plan (AAP) to the concerned Regional Office of the Urban Banks Department of RBI AAP would be for a period of 12 months beginning 1st April
?
?
Under sec 3 of Regional Rural Banks 1976, a sponsor bank has to apply to Central Government – which establishes the RRB by notification in the official gazette. Central Government subscribes 50% of the capital, State Government 15% and the balance by the sponsoring bank
?
The sponsoring bank has to provide:
? Training ? Managerial support ? Financial support For the 1st 5 years This period can be extended by Central Government or on recommendation from NABARD for a further period of 5 years
? ?
What is the Organization structure of Banks? Each Group take one PSB & one Private Sector Bank
?
? ?
What are the Capital Requirements for various types of Bank? What does Capital Adequacy Ratio mean? What is Tier I & Tier II capital?
?
?
?
Banks can List their shares on stock exchanges Banks can make Public Issues to augment their capital How much equity can foreign investors hold?
?
How much equity can foreign investors hold?
? Foreign investors can hold up to 10% of the paid-up capital of the banks established in India
?
?
Shareholders can exercise one vote for every share held by them – whenever a poll is held on any resolution in a general meeting Is there a cap on the voting rights?
?
Is there a cap on the voting rights?
? Yes ? No person can exercise more than 10% of the total voting rights of shareholders of a bank [Sec 12(2) BRA]
?
What is the purpose of such restrictions?
?
What is the purpose of such restrictions?
? To prevent any powerful person or a group from controlling management of a bank, which may not be in the interest of the financial health of the bank or in the interest of the depositors
?
Exception?
?
Exception?
? The above restriction does not apply to Government in respect of the shares held in PSBs ? It is therefore in full control of management of such banks
?
In case of Cooperative Banks what is the norm?
?
In case of Cooperative Banks what is the norm?
? Each shareholder can exercise only 1 vote irrespective of the number of shares held by the shareholder
?
?
There are 2 categories of Directors of Banking Company Which are they?
? ?
There are 2 categories of Directors of Banking Company Which are they?
? Whole-time Directors – CMD, MD, ED, etc) Under Sec 10.1(c)(iii) of BRA they can hold office for a maximum of 5 years at a time Their term can be renewed for further period of 5 years each ? Part-time Directors They cannot hold office for consecutive periods exceeding 8 years
?
?
Who cannot be a Director on the Board of a Bank? Can a whole-time director be a director in any other company? This issue was in news recently. Can you cite that issue. Are there any exceptions? Are they entitled to profits or commissions?
?
?
Sec 10-A(2) of BRA stipulates that not less than 51% of the total number of directors of a banking company should consist of persons who are professionals or persons having knowledge or experience of accountancy, agricultural & rural economy, banking, cooperation, economics, finance, law, small scale sector, etc. None of these should have substantial interest (i.e. should not hold more than 10% of the capital, either singly or along with his spouse & minor child) in any company (except a company registered under Sec 25 of Companies Act 1956) or a firm (except an SSI firm)
?
?
A person already on the board of a banking company cannot be appointed as a director of another banking company Banking company incorporated in India cannot have on its board more than 3 persons who are directors of companies, which are entitled to exercise more than 20% of the total voting rights of all shareholders of the banking company (Sec 16 of BRA)
?
?
Management of the Bank wrests with the Board of Directors Board has to be constituted in compliance with the provisions of Sec 10 of BRA
? ?
?
?
One director has to be appointed as Chairman of the Board If Chairman is a whole-time director, entrusted with the management of the Bank, subject to superintendence, control & direction of Board If Chairman is part-time, then the management of the bank is entrusted with a Managing Director What is the term of a whole-time Chairman or whole-time Managing Director?
?
?
If RBI finds a whole-time Chairman or wholetime Managing Director not fit and proper to hold such office, it may require the bank to elect or appoint any other person whole-time Chairman or Managing Director within 2 months Can you cite an example of such sacking of whole-time Chairman?
?
?
Such sacked whole-time Chairman/ MD can appeal to Central Government within 1 month The decision of Central Government & the order of RBI cannot be challenged any court.
? ? ?
Under Sec 10-BB of BRA, if the position of wholetime director is vacant, RBI may fill such vacancy If such person is not a director of a Bank, the person is deemed to have been elected till in office Under Sec 20 of BRA, none of the directors of a bank, the company in which they hold substantial interest, their firms, partners, employers can be sanctioned any loan or advances by the bank. Nor can the director stand as a guarantor to a loan or advance by the bank
? ? ? ? ? ?
Banker Customer Relationship Rights of a Banker Set-offs & Mandates Banking Operations – NI NI – Bankers Duties & Responsibilities Dishonour of Cheques
doc_759936514.pptx
familiarize with the legal requirements in setting up & conducting banking business in India. It also explains the licensing requirements for foreign banks.
?
To familiarize with the legal requirements in setting up & conducting banking business in India
?
To establish a commercial bank/ branch to whom do we have to make an application?
?
To establish a commercial bank/ branch to whom do we have to make an application?
? Application to RBI in prescribed format
?
?
Under Sec 22 of BRA, it is a must to obtain a licence from RBI. Exceptions?
?
Exceptions?
? Public Sector Banks ? Regional Rural Banks ? Because they are established under some special enactment
?
Information required:
? ? ? ? ? ? ?
Promoter/ promoter group Source of capital Professional management support Geographical area to be serviced Business mix Types of economic activities to be financed Profitability of operations
?
After sifting through the above information, RBI may grant license to the firm if it is in public interest.
?
It would stipulate:
? ? ? ?
? It should not be prejudicial to the stability and consolidation of the banking system Place of business Area of operations Minimum capital requirement CEO
?
Factors considered?
?
Factors considered:
? Geographic coverage ? Economic viability ? Logistic support
?
What other non BRA and RBI permissions are required to open branches?
?
What other non BRA and RBI permissions are required to open branches?
? Local authorities permissions ? Shop & establishment license
?
?
Each branch is required to display name and address of the registered office Branches of PSBs are required to display names, addresses and telephone numbers of their respective controlling authorities
?
?
Relocation/ merger/ closure of branches in metropolitan/ urban area can be carried out by Banks – just report to RBI Specific permission for whom?
?
Specific permission for closure of branches in rural areas
?
All Forex business – including acceptance of NR Forex deposits at specific branches require prior permission of RBI
?
Capital Market activities like:
? Securities Depository (holding shares in demat form on behalf of customers) ? Merchant Banking
?
Require registration with SEBI
? ?
Allowed to operate through branches only Test & entry criteria – same as above
?
In addition, what does the RBI looks into?
?
In addition:
? ? ? ? ? Dealings with Indian parties International & home country rating International presence Economic & trade relations with home country Supervisory standards prevalent in home country
?
RBI insists from on prior consent of the home country regulator. Why?
?
RBI insists from on prior consent of the home country regulator. Why?
? To ensure that the laws of the home country do not discriminate in any way against banks incorporated in India.
?
Minimum capital requirement?
?
Minimum capital requirement?
? Minimum assigned capital of USD 50 million ? Required to maintain minimum capital adequacy ratio of ____%
?
Minimum capital requirement?
? Minimum assigned capital of USD 50 million ? Required to maintain minimum capital adequacy ratio of 9% on aggregate risk weighted assets of their Indian operations
?
Representative Offices
? They too have to get home regulator’s consent – as it is construed to be an entry of a bank
?
?
Prior approval of RBI required for setting up a branch or subsidiary abroad Factors considered?
?
Factors considered:
? Importance of country as a centre of International Finance ? India’s trade with that region/ country ? Investment in country concerned ? Size of Indian population ? Size of expatriates in India ? Prevailing local laws ? Exchange control regulations, etc.
?
What is RBI requirement?
?
?
What is RBI requirement? RBI requires that:
? Any transfer of shares in banking industry exceeds 5% has to acknowledged by RBI before acceptance of transfer in books ? While seeking acknowledgement, the bank has to give declaration that the proposed transferee is not likely to acquire, either singly or along with the companies concerns in a group, a controlling interest in the bank.
?
?
Banks are allowed to set-up subsidiaries and make significant investments only in companies that are undertaking authorised under sec 6(1) of BRA. Why is this?
?
Why is this?
? To ensure that the banks form subsidiaries only in financial services sector and this requires prior approval of RBI. ? RBI applies the same tests and checks the viability before granting permission
?
How much shareholding can the Bank have?
?
How much shareholding can the Bank have?
? Under Sec 19(2) of BRA shareholding by banks as whether pledgee, mortagee, or absolute owner in other companies cannot exceed 30% of the paid up capital of the respective companies or 30% of their own paid-up share capital, whichever is less ? Investments in services company is subject to a ceiling of 10% of the bank’s paid-up capital & reserves ? Aggregate investment in all subsidiaries not to exceed 20% of the bank’s paid up capital
?
How should the relationship between the Bank and the subsidiary be?
?
?
How should the relationship between the Bank and the subsidiary be? RBI insists on a arms length relationship between the bank and the subsidiaries.
?
?
RBI can supervise the subsidiaries as they are registered as NBFCs Capital market related activities are under the functional regulation of SEBI
?
How much can the Bank invest in equity?
? ?
How much can the Bank invest in equity? In case of investment in equity of nonfinancial services company, investment should not exceed 5% of the incremental deposits of the previous year
?
What functions does RBI control?
?
RBI controls functions like:
? ? ? ? Branch license Area of operation Exposure norms Interest rates, etc.
?
Government controls which functions?
?
Government controls functions like:
? ? ? ? ? Incorporation Registration Management audit Amalgamation Liquidation/ winding up
?
?
Those not classified under Grade II/III/IV by RBI, may apply for allotment of centres under the Annual Action Plan (AAP) to the concerned Regional Office of the Urban Banks Department of RBI AAP would be for a period of 12 months beginning 1st April
?
?
Under sec 3 of Regional Rural Banks 1976, a sponsor bank has to apply to Central Government – which establishes the RRB by notification in the official gazette. Central Government subscribes 50% of the capital, State Government 15% and the balance by the sponsoring bank
?
The sponsoring bank has to provide:
? Training ? Managerial support ? Financial support For the 1st 5 years This period can be extended by Central Government or on recommendation from NABARD for a further period of 5 years
? ?
What is the Organization structure of Banks? Each Group take one PSB & one Private Sector Bank
?
? ?
What are the Capital Requirements for various types of Bank? What does Capital Adequacy Ratio mean? What is Tier I & Tier II capital?
?
?
?
Banks can List their shares on stock exchanges Banks can make Public Issues to augment their capital How much equity can foreign investors hold?
?
How much equity can foreign investors hold?
? Foreign investors can hold up to 10% of the paid-up capital of the banks established in India
?
?
Shareholders can exercise one vote for every share held by them – whenever a poll is held on any resolution in a general meeting Is there a cap on the voting rights?
?
Is there a cap on the voting rights?
? Yes ? No person can exercise more than 10% of the total voting rights of shareholders of a bank [Sec 12(2) BRA]
?
What is the purpose of such restrictions?
?
What is the purpose of such restrictions?
? To prevent any powerful person or a group from controlling management of a bank, which may not be in the interest of the financial health of the bank or in the interest of the depositors
?
Exception?
?
Exception?
? The above restriction does not apply to Government in respect of the shares held in PSBs ? It is therefore in full control of management of such banks
?
In case of Cooperative Banks what is the norm?
?
In case of Cooperative Banks what is the norm?
? Each shareholder can exercise only 1 vote irrespective of the number of shares held by the shareholder
?
?
There are 2 categories of Directors of Banking Company Which are they?
? ?
There are 2 categories of Directors of Banking Company Which are they?
? Whole-time Directors – CMD, MD, ED, etc) Under Sec 10.1(c)(iii) of BRA they can hold office for a maximum of 5 years at a time Their term can be renewed for further period of 5 years each ? Part-time Directors They cannot hold office for consecutive periods exceeding 8 years
?
?
Who cannot be a Director on the Board of a Bank? Can a whole-time director be a director in any other company? This issue was in news recently. Can you cite that issue. Are there any exceptions? Are they entitled to profits or commissions?
?
?
Sec 10-A(2) of BRA stipulates that not less than 51% of the total number of directors of a banking company should consist of persons who are professionals or persons having knowledge or experience of accountancy, agricultural & rural economy, banking, cooperation, economics, finance, law, small scale sector, etc. None of these should have substantial interest (i.e. should not hold more than 10% of the capital, either singly or along with his spouse & minor child) in any company (except a company registered under Sec 25 of Companies Act 1956) or a firm (except an SSI firm)
?
?
A person already on the board of a banking company cannot be appointed as a director of another banking company Banking company incorporated in India cannot have on its board more than 3 persons who are directors of companies, which are entitled to exercise more than 20% of the total voting rights of all shareholders of the banking company (Sec 16 of BRA)
?
?
Management of the Bank wrests with the Board of Directors Board has to be constituted in compliance with the provisions of Sec 10 of BRA
? ?
?
?
One director has to be appointed as Chairman of the Board If Chairman is a whole-time director, entrusted with the management of the Bank, subject to superintendence, control & direction of Board If Chairman is part-time, then the management of the bank is entrusted with a Managing Director What is the term of a whole-time Chairman or whole-time Managing Director?
?
?
If RBI finds a whole-time Chairman or wholetime Managing Director not fit and proper to hold such office, it may require the bank to elect or appoint any other person whole-time Chairman or Managing Director within 2 months Can you cite an example of such sacking of whole-time Chairman?
?
?
Such sacked whole-time Chairman/ MD can appeal to Central Government within 1 month The decision of Central Government & the order of RBI cannot be challenged any court.
? ? ?
Under Sec 10-BB of BRA, if the position of wholetime director is vacant, RBI may fill such vacancy If such person is not a director of a Bank, the person is deemed to have been elected till in office Under Sec 20 of BRA, none of the directors of a bank, the company in which they hold substantial interest, their firms, partners, employers can be sanctioned any loan or advances by the bank. Nor can the director stand as a guarantor to a loan or advance by the bank
? ? ? ? ? ?
Banker Customer Relationship Rights of a Banker Set-offs & Mandates Banking Operations – NI NI – Bankers Duties & Responsibilities Dishonour of Cheques
doc_759936514.pptx