with the cash reserve ratio and statutory liquidity ratio requirements
(under Section 42 of RBI Act,
1934, and Section 24 of the Banking Regulation Act, 1949, respectively )
would be mandatory for an FI after its conversion into a universal bank.
activity of an FI currently undertaken but not permissible for a bank under
Section 6(1) of the B. R. Act, 1949, may have to be stopped or divested
after its conversion into a universal bank..
immovable property, howsoever acquired by an FI, would, after its conversion
into a universal bank, be required to be disposed of within the maximum
period of 7 years from the date of acquisition, in terms of
Section 9 of the B. R. Act.
the composition of the Board of Directors might become necessary for some of
the FIs after their conversion into a universal bank, to ensure compliance
with the provisions of Section 10(A) of the B. R. Act, which requires at
least 51% of the total number of directors to have special knowledge and
floating charge, if created by an FI, over its assets, would require, after
its conversion into a universal bank, ratification by the Reserve Bank of
India under Section 14(A) of the B. R. Act, since a banking company is not
allowed to create a floating charge on the undertaking or any property of
the company unless duly certified by RBI as required under the Section.
any of the existing subsidiaries of an FI is engaged in an activity not
permitted under Section 6(1) of the B R Act , then on conversion of the FI
into a universal bank, delinking of such subsidiary / activity from the
operations of the universal bank would become necessary since Section 19 of
the Act permits a bank to have
subsidiaries only for one or more of the activities permitted under Section
6(1) of B. R. Act.
FI with equity investment in companies in excess of 30 per cent of the paid
up share capital of that company or 30 per cent of its own paid-up share
capital and reserves, whichever is less, on its conversion into a universal
bank, would need to divest such excess holdings to secure compliance with
the provisions of Section 19(2) of the B. R. Act, which prohibits a bank
from holding shares in a company in excess of these limits.
20 of the B. R. Act prohibits grant of loans and advances by a bank on
security of its own shares or grant of loans or advances on behalf of any of
its directors or to any firm in which its director/manager or employee or
guarantor is interested. The
compliance with these provisions would be mandatory after conversion of an
FI to a universal bank.
FI converting into a universal bank would be required to obtain a banking
licence from RBI under Section 22 of the B. R. Act, for carrying on banking
business in India, after complying with the applicable conditions.
FI, after its conversion into a bank, would also be required to comply with
extant branch licensing policy of RBI under
which the new banks are required to allot at east 25 per cent of their total
number of branches in semi-urban and rural areas.
FI after its conversion into a universal bank, will be required to ensure
that at the close of business on the last Friday of every quarter, its total
assets held in India are not less than 75 per cent of its total demand and
time liabilities in India, as required of a bank under Section 25 of the B R
converting into a universal bank, an FI will be required to publish its
annual balance sheet and profit and loss account in the in the forms set out
in the Third Schedule to the B R Act, as prescribed for a banking company
under Section 29 and Section 30 of the B. R. Act .
conversion into a universal bank, the appointment and remuneration of the
existing Chief Executive Officers may have to be reviewed with the approval
of RBI in terms of the provisions of Section 35 B of the B. R. Act. The
Section stipulates fixation of remuneration of the Chairman and Managing
Director of a bank by Reserve Bank of India taking into account the
profitability, net NPAs and other financial parameters. Under the Section,
prior approval of RBI would also be required for appointment of Chairman and
FI, on conversion into a universal bank, would also be required to comply
with the requirement of compulsory deposit insurance from DICGC up to a
maximum of Rs.1 lakh per account, as applicable to the banks.
of the FIs at present hold restricted AD licence from RBI, Exchange Control
Department to enable them to undertake transactions necessary for or
incidental to their prescribed functions.
On conversion into a universal bank, the new bank would normally be
eligible for fulfledged authorised dealer licence and would also attract the
full rigour of the Exchange Control Regulations applicable to the banks at
present, including prohibition on raising resources through external
conversion of an FI to a universal bank, the obligation for lending to
“priority sector” up to a prescribed percentage of their ‘net bank
credit’ would also become applicable to it .
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