A

Synopsis On
“A Study of RBI Norms For Banking License”

Submitted to
Dr.Homi Bhabha State University
Bcom (Banking & Insurance)
Under the Faculty of Commerce

By
SAYALI SHASHIKANT SHIRKE
TYBBI
ROLL.NO.: 80

Under the Guidance of

Dr. JHARNA KALRA
(MMS,M.COM)

SYDENHAM COLLEGE OF COMMERCE AND ECONOMICS,

B-ROAD, CHURCHGATE,
MUMBAI-400020

September-2023
 CHAPTER 1
INTRODUCTION
The Reserve Bank of India, abbreviated as RBI, is India's central bank and regulatory
body responsible for regulation of the Indian banking system. It is under the ownership of
Ministry of Finance, Government of India. It is responsible for the control, issue and
maintaining supply of the Indian rupee. It also manages the country's main payment
systems and works to promote its economic development. Bharatiya Reserve Bank Note
Mudran (BRBNM) is a specialised division of RBI through which it prints and mints
Indian currency notes (INR) in four of its currency printing presses located in Nashik
(Maharashtra; Western India), Dewas (Madhya Pradesh; Central India), Mysore
(Karnataka; Southern India) and Salboni (West Bengal; Eastern India).The RBI
established the National Payments Corporation of India as one of its specialised division to
regulate the payment and settlement systems in India. Deposit Insurance and Credit
Guarantee Corporation was established by RBI as one of its specialised division for the
purpose of providing insurance of deposits and guaranteeing of credit facilities to all
Indian banks.
Until the Monetary Policy Committee was established in 2016, it also had full control over
monetary policy in the country. It commenced its operations on 1 April 1935 in
accordance with the Reserve Bank of India Act, 1934. The original share capital was
divided into shares of 100 each fully paid .Following India's independence on 15 August
1947, the RBI was nationalised on 1 January 1949.
The overall direction of the RBI lies with the 21-member central board of directors,
composed of: the governor; four deputy governors; two finance ministry representatives
(usually the Economic Affairs Secretary and the Financial Services Secretary); ten
government-nominated directors; and four directors who represent local boards for
Mumbai, Kolkata, Chennai, and Delhi. Each of these local boards consists of five
members who represent regional interests and the interests of co-operative and indigenous
banks.
It is a member bank of the Asian Clearing Union. The bank is also active in promoting
financial inclusion policy and is a leading member of the Alliance for Financial Inclusion
(AFI). The bank is often referred to by the name 'Mint Street'.
1.HISTORY

The Reserve Bank of India was established following the Reserve Bank of India Act of
1934.Though privately owned initially, it was nationalised in 1949 and since then fully
owned by the Ministry of Finance, Government of India (GoI).
1935-1949
The Reserve Bank of India was founded on 1 April 1935 to respond to economic troubles
after the First World War. The bank was set up based on the recommendations of the 1926
Royal Commission on Indian Currency and Finance, also known as the Hilton Young
Commission. Eventually, the Central Legislative Assembly passed these guidelines as the
RBI Act 1934. The original choice for the seal of RBI was the East India Company
Double Mohur, with the sketch of the Lion and Palm Tree. However, it was decided to
replace the lion with the tiger, the national animal of India.
The Preamble of the RBI describes its basic functions to regulate the issue of banknotes,
keep reserves to secure monetary stability in India, and generally to operate the currency
and credit system in the best interests of the country. The Central Office of the RBI was
established in Calcutta (now Kolkata) but was moved to Bombay (now Mumbai) in 1937.
The RBI also acted as Burma's (now Myanmar) central bank until April 1947 (except
during the years of Japanese occupation (1942–45)), even though Burma seceded from the
Indian Union in 1937. After the Partition of India in August 1947, the bank served as the
central bank for Pakistan until June 1948 when the State Bank of Pakistan commenced
operations. Though set up as a shareholders' bank, the RBI has been fully owned by the
Government of India since its nationalisation in 1949. RBI has a monopoly of note issue.
1950-1960
In the 1950s, the Indian government, under its first Prime Minister Jawaharlal Nehru,
developed a centrally planned economic policy that focused on the agricultural sector. The
administration nationalised commercial banks and established, based on the Banking
Companies Act, 1949 (later called the Banking Regulation Act), a central bank regulation
as part of the RBI. Furthermore, the central bank was ordered to support economic plan
with loans.
1961-1968
As a result of bank crashes, the RBI was requested to establish and monitor a deposit
insurance system. Meant to restore the trust in the national bank system, it was initialized
on 7 December 1961. The Indian government founded the funds to promote the economy
and used the slogan "Developing Banking". The government of India restructured the
national bank market and nationalized a lot of institutes. As a result, the RBI had to play
the central part in controlling and supporting this public banking sector.
1969-1984
In 1969, the Indira Gandhi-headed government nationalised 14 major commercial banks.
Upon Indira Gandhi's return to power in 1980, a further six banks were nationalised.[16]
The regulation of the economy and especially the financial sector was reinforced by the
Government of India in the 1970s and 1980s. The central bank became the central player
and increased its policies a lot for various tasks like interests, reserve ratio and visible
deposits. These measures aimed at better economic development and had a huge effect on
the company policy of the institutes. The banks lend money in selected sectors, like
agricultural business and small trade companies.The Banking Commission was established
on Wednesday, 29 January 1969, to analyse banking costs, effects of legislations and
banking procedures, including non-banking financial intermediaries and indigenous
banking on Government of India economy; with R.G. Saraiya as the chairman.
The branch was forced to establish two new offices in the country for every newly
established office in a town. The oil crises in 1973 resulted in increasing inflation, and the
RBI restricted monetary policy to reduce the effects.
1985-1990
A lot of committees analysed the Indian economy between 1985 and 1989. Their results
had an effect on the RBI. The Board for Industrial and Financial Reconstruction, the Indira
Gandhi Institute of Development Research and the Security & Exchange Board of India
investigated the national economy as a whole, and the security and exchange board
proposed better methods for more effective markets and the protection of investor
interests. The Indian financial market was a leading example for so-called "financial
repression" (Mckinnon and Shaw). The Discount and Finance House of India began its
operations in the monetary market in April 1988; the National Housing Bank, founded in
July 1988, was forced to invest in the property market and a new financial law improved
the versatility of direct deposit by more security measures and liberalisation.
1991-1999
The national economy contracted in July 1991 as the Indian rupee was devalued. The
currency lost 18% of its value relative to the US dollar, and the Narsimham Committee
advised restructuring the financial sector by a temporal reduced reserve ratio as well as the
statutory liquidity ratio. New guidelines were published in 1993 to establish a private
banking sector. This turning point was meant to reinforce the market and was often called
neo-liberal.
The central bank deregulated bank interests and some sectors of the financial market like
the trust and property markets. This first phase was a success and the central government
forced a diversity liberalisation to diversify owner structures in 1998.
The National Stock Exchange of India took the trade on in June 1994 and the RBI allowed
nationalised banks in July to interact with the capital market to reinforce their capital base.
The central bank founded a subsidiary company—the Bharatiya Reserve Bank Note
Mudran Private Limited on 3 February 1995 to produce banknotes.
2000-2009
The Foreign Exchange Management Act, 1999 came into force in June 2000. It should
improve the item in 2004–2005 (National Electronic Fund Transfer). The Security Printing
& Minting Corporation of India Ltd., a merger of nine institutions, was founded in 2006
and produces banknotes and coins.
The national economy's growth rate came down to 5.8% in the last quarter of 2008–2009
and the central bank promotes the economic development.
Since 2010
In 2016, the Government of India amended the RBI Act to establish the Monetary Policy
Committee (MPC) to set. This limited the role of the RBI in setting interest rates, as the
MPC membership is evenly divided between members of the RBI (including the RBI
governor) and independent members appointed by the government. However, in the event
of a tie, the vote of the RBI governor is decisive.
In April 2018, the RBI announced that "entities regulated by RBI shall not deal with or
provide services to any individual or business entities dealing with or settling virtual
currencies," including Bitcoin.[36] While the RBI later clarified that it "has not prohibited"
virtual currencies,[37] a three-judge panel of the Supreme Court of India issued a ruling on
4 March 2020 that the RBI had failed to show "at least some semblance of any damage
suffered by its regulated entities" through the handling of virtual currencies to justify its
decision.[38] The court challenge was filed by the Internet and Mobile Association of
India, whose members include some cryptocurrency exchanges whose businesses suffered
following the RBI's 2018 order.

1.1 Branches and Support bodies

The RBI has four regional representations: North in New Delhi, South in Chennai, East in
Kolkata and West in Mumbai. The representations are formed by five members, appointed
for four years by the central government and with the advice of the central board of
directors serve as a forum for regional banks and to deal with delegated tasks from the
Central Board.
RBI has 31 branches in India. Mostly all are in Capital cities, exceptions are the Nagpur
Reserve Bank branch which is actually a Second capital of Maharashtra and the
Ahmedabad Reserve Bank branch. Nagpur Reserve Bank was established in 1956, while
the Ahmedabad branch was established in 1950.
It has 3 training colleges for its officers, viz. Reserve Bank Staff College Chennai, Reserve
Bank of India Academy Mumbai, and Reserve Bank of India College of Agricultural
Banking Pune. There are three autonomous institutions run by RBI namely National
Institute of Bank Management (NIBM), Indira Gandhi Institute of Development Research
(IGIDR), Institute for Development and Research in Banking Technology (IDRBT).[56]
There are also four zonal training centres at Mumbai, Chennai, Kolkata, and New Delhi.
The Board of Financial Supervision (BFS), formed in November 1994, serves as a CCBD
committee to control the financial institutions. It has four members, appointed for two
years, and takes measures to strength the role of statutory auditors in the financial sector,
external monitoring, and internal controlling systems. The Tarapore committee was set up
by the Reserve Bank of India under the chairmanship of former RBI deputy governor S. S.
Tarapore to "lay the road map" to capital account convertibility. The five-member
committee recommended a three-year time frame for complete convertibility by 1999–
2000.
On 8 December 2017, Surekha Marandi, executive director (ED) of Reserve Bank of
India, said RBI will open an office in the north-eastern state of Arunachal Pradesh.
1.2 SUBSIDIARIES
Bharatiya Reserve Bank Note Mudran
BRBNM was established by RBI on 3 February 1995 for the purpose to enable RBI to
bridge the gap between maintain, demand and supply of Indian rupee notes in the country.
Deposit Insurance and Credit Guarantee Corporation
Deposit Insurance and Credit Guarantee Corporation was established by RBI for the
purpose of providing insurance of deposits and guaranteeing of credit facilities to all
Indian banks.
National Payments Corporation of India
National Payments Corporation of India was established by RBI in Dec 2008 for the
purpose of management of the payment and settlement systems in India.
Reserve Bank Information Technology
Reserve Bank Information Technology It has been set up by RBI to serve its Information
Technology and cyber security needs and to improve the cyber resilience of the Indian
banking industry.
Reserve Bank Innovation Hub
Shaktikanta Das inaugurated the Reserve Bank Innovation Hub (RBIH) on 24 March 2022
in Bengaluru as Section-8 company under Companies Act, 2013, with an initial investment
of ₹100 crore to encourage and nurture financial innovation in a sustainable manner
through an institutional set-up. RBIH meant to create an ecosystem that focuses on
promoting access to financial services and products for the low-income groups in India. It
will also help bring world class innovation to financial sector.
RBIH is to help in convergence among various stakeholders from BFSI sector, Start-up
ecosystem, Regulators and Academia in the financial innovation space. RBIH is working
on the blueprint of Digital Rupee.
1.3 FUNCTIONS OF RBI
1.3.1 Financial supervision
The primary objective of RBI is to undertake consolidated supervision of the financial
sector comprising commercial banks, financial institutions. The board is constituted by co-
opting four directors from the Central Board as members for a term of two years and is
chaired by the governor. The deputy governors of the reserve bank are ex-officio
members. One deputy governor, usually the deputy governor in charge of banking
regulation and supervision, is nominated as the vice-chairman of the board. The board is
required to meet normally once every month. It considers inspection reports and other
supervisory issues placed before it by the supervisory departments.
1.3.2 Regulator and supervisor of the financial system
The institution is also the regulator and supervisor of the financial system and prescribes
broad parameters of banking operations within which the country's banking and financial
system functions. Its objectives are to maintain public confidence in the system, protect
depositors' interest and provide cost-effective banking services to the public. The Banking
Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for
effective addressing of complaints by bank customers. The RBI controls the monetary
supply, monitors economic indicators like the gross domestic product and has to decide the
design of the rupee banknotes as well as coins.
1.3.3 Regulator and supervisor of the payment and settlement systems
Payment and settlement systems play an important role in improving overall economic
efficiency. The Payment and Settlement Systems Act of 2007 (PSS Act) gives the
Reserve Bank oversight authority, including regulation and supervision, for the payment
and settlement systems in the country. In this role, the RBI focuses on the development
and functioning of safe, secure and efficient payment and settlement mechanisms. Two
payment systems National Electronic Fund Transfer (NEFT) and Real-Time Gross
Settlement (RTGS) allow individuals, companies and firms to transfer funds from one
bank to another. These facilities can only be used for transferring money within the
country.
1.3.4 Banker and debt manager to government
Just as individuals need a bank to carry out their financial transactions effectively and
efficiently, governments also need a bank to carry out their financial transactions. The RBI
serves this purpose for the Government of India (GoI). As a banker to the Government of
India, the RBI maintains its accounts, receive payments into and make payments out of
these accounts. The RBI also helps the GoI to raise money from the public via issuing
bonds and government-approved securities. In Sep 2019, a decision at RBI directors meet
was taken to change the RBI financial accounting year to March–April to align itself with
the central government calendar instead of the current June–July year.
1.3.5 Managing foreign exchange
The central bank manages to reach different goals of the Foreign Exchange Management
Act, 1999. Their objective is to facilitate external trade and payment and promote orderly
development and maintenance of foreign exchange market in India.
With the increasing integration of the Indian economy with the global economy arising
from greater trade and capital flows, the foreign exchange market has evolved as a key
segment of the Indian financial market and the RBI has an important role to play in
regulating and managing this segment. The RBI manages forex and gold reserves of the
nation.
On a given day, the foreign exchange rate reflects the demand for and supply of foreign
exchange arising from trade and capital transactions. The RBI's Financial Markets
Department (FMD) participates in the foreign exchange market by undertaking
sales/purchases of foreign currency to ease volatility in periods of excess demand
for/supply of foreign currency.
1.3.6 Issue of currency
Other than the Government of India, the Reserve Bank of India is the sole body authorised
to issue banknotes in India. The bank also destroys banknotes when they are not fit for
circulation. All the money issued by the central bank is its monetary liability, i.e., the
central bank is obliged to back the currency with assets of equal value, to enhance public
confidence in paper currency. The objectives are to issue banknotes and give the public
adequate supply of the same, to maintain the currency and credit system of the country to
utilise it in its best advantage, and to maintain the reserves.
1.3.7 Bankers' bank
Reserve Bank of India also works as a central bank where commercial banks are account
holders and can deposit money. RBI maintains banking accounts of all scheduled banks.
Commercial banks create credit. It is the duty of the RBI to control the credit through the
CRR, repo rate, and open market operations. As the bankers' bank, the RBI facilitates the
clearing of cheques between the commercial banks and helps the inter-bank transfer of
funds. It can grant financial accommodation to schedule banks. It acts as the lender of the
last resort by providing emergency advances to the banks.
1.3.8 Regulator of the Banking System
RBI has the responsibility of regulating the nation's financial system. As a regulator and
supervisor of the Indian banking system it ensures financial stability & public confidence
in the banking system. RBI uses methods like On-site inspections, off-site surveillance,
scrutiny & periodic meetings to supervise new bank licences, setting capital requirements
and regulating interest rates in specific areas. RBI is currently focused on implementing
norms.
1.3.9 Developmental role
The central bank has to perform a wide range of promotional functions to support national
objectives and industries. The RBI faces a lot of inter-sectoral and local inflation-related
problems. Some of these problems are results of the dominant part of the public sector.
Key tools in this effort include Priority Sector Lending such as agriculture, micro and
small enterprises (MSE), housing and education. RBI work towards strengthening and
supporting small local banks and encourage banks to open branches in rural areas to
include large section of society in banking net.
1.3.10 Banker to the Government
The RBI is also a banker to the government and performs merchant banking function for
the central and the state governments. It also acts as their banker. The National Housing
Bank (NHB) was established in 1988 to promote private real estate acquisition. The
institution maintains banking accounts of all scheduled banks, too. RBI on 7 August 2012
said that Indian banking system is resilient enough to face the stress caused by the
drought-like situation because of poor monsoon this year.
2. GUIDELINES FOR BANKING LICENCES
2.1 Legal Requirements
The Banking Regulation Act of 1949 (the Act)'s Section 23 regulations apply to bank
branch openings. According to these laws, banks are not permitted to establish a new
location for their operations in India or abroad or to relocate them outside of their current
city, town, or hamlet without first obtaining RBI approval.
Therefore, before opening branches or offices, banks must first obtain an approval or
license from the RBI. This requirement applies to commercial banks and local area banks
from the Department of Banking Operations and Development, urban cooperative banks
from the Urban Banks department, and regional rural banks from the Rural Planning and
Credit Department.
2.2 General Policy on Bank Licensing
The Board of Directors of banks must make decisions regarding the policy and
strategy for opening new branches while taking into account the yearly
business plan, the potential for business at the new locations for opening
branches, the profitability of the proposed branches, the effectiveness of the
internal control system, the redeployment of staff where surplus manpower has
been identified, and the need to provide prompt and economical customer
service to the clientele.
Before opening, moving, or shutting offices/branches, etc., banks need first
acquire the Board or Committee of Directors' approval. The Reserve Bank of
India must be notified of the proposed branch opening or relocation together
with the required application in Form VI (Rule 12) of the Banking Regulation
(Companies Rules), 1949.
The Reserve Bank of India evaluates requests for the opening of branches
made by banks based on the merits of each case and taking into account the
bank's overall financial position, the caliber of its management, the
effectiveness of its internal control system, profitability, and other pertinent
aspects. After receiving permission from the Reserve Bank of India, the banks
should decide on the location, infrastructure, etc., and then contact the relevant
Regional Office of the Reserve Bank of India for the real branch opening
license. Additionally, if the branch wishes to conduct government business, it
must first receive approval from the relevant government agency and the
Reserve Bank of India. If the banks want to conduct business with the State
Government, they should contact the Regional Director of the RBI in that
jurisdiction.
In relation to Central Bank accounts, and the Department of Government &
Bank Accounts, Central Office, RBI, Mumbai Governmental affairs. The
branch should only be opened following receipt of a Reserve Bank license
from India. Banks shouldn't take excessively long to use authorizations or
licenses for branches spreading out.
The Reserve Bank of India (the RBI) and the government have made
adjustments to banking policies as and when necessary, resulting in a
continuously developing banking sector in India. The RBI oversees the terms
of licenses and grants them to organizations looking to form new banks and
enter the market.
No banks could be established in the private sector for over 20 years, from the
1970s to the 1990s. The rules for approving new banks in the private sector
were initially developed in 1993 as a result of economic liberalization (1993
Guidelines), and they were updated in 2001 (2001 Guidelines).
On February 22, 2013, the RBI released the updated rules for approving new
banks in the private sector (2013 Guidelines). By July 1, 2013, applications for
licenses under the 2013 Guidelines must be filed with the RBI. Once a license
is granted, banks must be established within a year of receiving the in-principle
approval.
Eligible promoters
Individuals, corporate organizations, and financial institutions were all
permitted to establish banks under the 1993 Guidelines. The 2001 Guidelines
changed this rule, disallowing large industrial firms from promoting new banks
and allowing individuals and financial organizations to establish banks.
However, up to 10% of the stock in a new private sector bank could be held by
individual businesses (directly or indirectly affiliated with significant industrial
houses). The 2013 Guidelines have now opened up the application process for
banking licenses to all categories of private businesses and corporate groups
(owned and controlled by citizens), as well as existing Non-Banking Financial
Companies (NBFCs).
The "fit and proper" criterion, which was also created by the RBI, stipulates
that a promoter must have a history of solid credentials, be financially stable,
and have a successful track record of managing the business for at least ten
years. Intriguingly, despite the RBI's initial reluctance, firms in the real estate
and insurance sectors are also qualified under the 2013 Guidelines to promote
new banks.
Corporate structure
New banks had to register as public limited companies under the Companies
Act of 1956 in accordance with the 1993 and 2001 Guidelines. New banks can
only be established by promoters using fully owned Non-Operative Financial
Holding Companies (NOFHCs), according to the 2013 Guidelines. The RBI
must have the NOFHC's NBFC registration.
Promoters' control
The promoters' holding cap was not mentioned in the 1993 Guidelines. The
2001 Guidelines added a requirement saying that the original capital must be
locked in for a minimum of five years and that the promoters' contribution
must be at least 40% of the bank's paid-up equity capital at any given time. In a
similar vein, the 2013 Guidelines mandate that the NOFHC hold a minimum of
40% of the bank's paid-up voting equity capital, which must be locked in for a
minimum of five years. However, new terms regarding the contribution of
promoters have been added.
Foreign shareholding
According to the 2001 Guidelines, non-resident equity participation in a new
bank was to be limited to a maximum of 40% and to no more than 20% in the
case of foreign banking/finance companies acting as technical collaborators or
co-promoters. The 2013 Guidelines limit non-resident shareholding from FDI,
FIIs, and NRIs to 49% for the first five years following the bank's license.
Regulatory framework
The Banking Regulation Act of 1949, the Reserve Bank of India Act of 1934,
the Foreign Exchange Management Act of 1999, the Payment and Settlement
Systems Act of 2007, and other pertinent statutes, as well as the directives,
prudential regulations, and other guidelines/instructions periodically issued by
the RBI and other regulators, including the rules of SEBI regarding public
issues and other guidelines applicable to listed banking companies, will all be
used to govern the bank.
 The NOFHC shall be controlled by a unique set of guidelines published
by the RBI and registered with the RBI as a non-banking financial
company (NBFC).
 The statutes and rules that apply to the financial entities that the NOFHC
holds will be established by the relevant financial sector regulators.
3. OPENING OF BRANCHES
3.1 General branches.
3.1.1 At Rural Centres.
The individual banks must use their best judgment to determine if it is necessary to open
new branches in rural communities (with a population of under ten thousand) that are part
of their Service Area. The District Consultative Committee in question must accept the
banks' bids for opening branches in rural areas. (DCC) and submitted to the Department of
Banking Operations and Development's Central Office. (Directorate of Institutional
Development) requiring prior clearance through the appropriate State Government
Finance).
New private sector banks may, however, submit their plans to the Reserve Bank of India
since these banks must establish a minimum of 25% of their total branches in rural or
semirural areas in India, As a requirement of the license granted to them under Section 22
of the B..R..Act, 1949, urban areas.
3.1.2 At Hilly and Tribal Areas
There may still be a need for new bank branches in these places given the unique
topography of hilly, tribal, and sparsely populated areas. Additionally, the Average
Population Per Bank Office is much higher in States like Bihar and North Eastern States
like Assam, Manipur, and Tripura, among others.
Hence it is sense to give these regions and States priority when opening new bank offices.
3.1.3 At Semi-urban/Urban and Metropolitan Centres.
Depending on the potential for business, banks can choose to open branches in semi-urban
centers (population greater than 10,000 but less than 100,000), urban centers (population
greater than 100,000 but less than ten lakh), or metropolitan centers (population greater
than ten lakh). monetary success of the suggested branches. They ought to submit the
proposals along with the relevant Board.

Resolutions submitted to the DBOD Central Office for prior approval. requests for
opening from the banks branches at these centers will be evaluated based on their
individual merits.

3.2 Specialised branches.

The following categories of specialized branches can be opened by banks without prior
approval, but only after first acquiring a license from the relevant Regional Office of the
RBI.

(a) Industrial Finance branches

(b) Overseas branches

(c) SIB/SSI branches

(d) Treasury branches, and

(e) NRI branches

The banks should make sure that the newly opened specialized branches don't negatively
impact the viability of the bank's other local branches. The Central Office of the
Department of Banking Operations and Development must give its prior approval before
any other categories of specialized branches, such as personal banking branches, merchant
banking branches, asset recovery branches, etc., can be opened by banks.

Additionally, banks are now allowed to designate their ordinary banking branches as
specialized SSI branches if they provide at least 60% of their advances to the SSI sector.
However, banks must make sure that non-SSI customers of SSI branches are not
inconvenienced or denied access to banking services once they are classified as
Specialized SSI branches. Banks are required to obtain necessary amendment to the
licences from the concerned Regional Office immediately on classification of these
branches as Specialised SSI branches.

3.3 Housing Finance branches

One of the banks' designated branches should be used exclusively for home finance in
each district. The housing finance office in question could also carry out other typical
banking duties. The Reserve Bank of India's relevant regional office must, however, be
contacted in advance if a bank wishes to have its license amended.

3.4 Industrial/Project Area Branches

Additional bank branches are anticipated to be needed for project sites, industrial
areas/estates supported by state governments, and new markets. It is important to take into
account the projects' or industrial zones' current financial arrangements while determining
how to meet these requirements. as you apply for a job.

Banks must submit the following details regarding the number of branches at such centers:

 A description of the project and an estimate of the costs involved

  The project's stage of implementation; c any shortcomings in the current banking
arrangements and whether any arrangements could be made to address them.
 Arranged with a neighboring bank branch operating at or near such project for the
purpose centre
 Whether the project location is within a service area that already exists; if so, the
bank whose such a branch is serving the area;
 any banks participated in financing these projects
 Any already-existing branches as well as the proposed branch's viability.

3.5 Operating of Satellite Offices

The concerned District Consultative Committee and Directorate of Institutional Finance of

the concerned State Government must both give their consent before the banks can open
satellite offices in rural areas where they do not deem it economically feasible to do so.
The request for the establishment of the satellite office, together with should be sent to the
Department of Banking's Central Office with pertinent Board approval. Operations and
Development should first get permission.

The following guidelines may be followed by the banks for establishing Satellite Offices:

 The Central Village/Block Head Quarters should serve as the base branch for the
Satellite Offices, which should be erected at permanent locations in the neighboring
villages and managed from there.
 Each satellite office should be open on a few designated days (at least twice a week)
and during a designated time.
 While separate ledgers, registers, and scrolls may be kept for each satellite office,
all transactions made at these locations should be recorded in the base branch's
books of account.
 The base branch's employees, which should ideally include a supervisory employee,
a cashier/clerk and an armed guard, may be sent to the satellite offices.

3.6 Service branches

Without the permission of the Reserve Bank of India, banks may open Service branches or
Regional Collection Centers to facilitate clearing and related tasks at major centers. Prior
to operating these branches, banks must first get a license from the relevant Regional
Office of the RBI..

In a similar vein, banks are free to relocate or close their offices as they see fit without
seeking RBI approval.. Before moving an office, banks must seek the relevant license
amendment from the regional office of the RBI whose jurisdiction the proposed location
for moving falls. In the event that such offices are shut down, the license must be returned
to the relevant Regional Office of RBI for cancellation immediately upon the office's
closing on the Department of Statistical's recommendation DESACS is an acronym for
RBI's analysis and computer services.

3.7 Controlling, administrative, zonal, and regional offices.

Banks have the option of opening Regional, Administrative, Zonal, or Controlling offices,
which are not allowed to conduct any banking operations. The Reserve Bank of India's
concerned Regional Office, however, must grant banks a license before they can operate
or open these offices. Additionally, without the RBI's permission, banks are free to
relocate or close these offices as they see fit.

Before moving the concerned offices, banks must request the necessary adjustment to their
license from the regional office of the RBI whose authority the planned relocation falls
under. If such offices close, the license must be returned to the relevant Regional Office of
RBI for cancellation immediately following the office's closure on the advise of RBI's
DESACS.

4. PROCEDURE FOR RBI DECISIONS

(i) In view of the increasing emphasis on stringent prudential norms, transparency,
disclosure requirements and modern technology, banks need to have strength and
efficiency to work profitably in a highly competitive environment.

(ii) Banking being a highly leveraged business, licences shall be issued on a very selective
basis to those who conform to the above requirements, who have an impeccable track
record and who are likely to conform to the best international and domestic standards of
customer service and efficiency. Therefore, it may not be possible for RBI to issue
licences to all the applicants meeting the eligibility criteria prescribed above.

(iii) At the first stage, the applications will be screened by RBI to ensure prima facie
eligibility of the applicants. RBI may apply additional criteria to determine the suitability
of applications, in addition to the ’fit and proper’ criteria prescribed at paragraph 2(B).
Thereafter, the applications will be referred to a High Level Advisory Committee to be set
up by RBI.
(iv) The High Level Advisory Committee will comprise eminent persons with experience
in banking, financial sector and other relevant areas. The constitution of the committee
will be announced shortly.

(v) The High Level Advisory Committee will set up its own procedures for screening the
applications. The Committee will reserve the right to call for more information as well as
have discussions with any applicant/s and seek clarification on any issue as may be
required by it. The Committee will submit its recommendations to RBI for consideration.
The decision to issue an in-principle approval for setting up of a bank will be taken by
RBI. RBI’s decision in this regard will be final.

(vi) The validity of the in-principle approval issued by RBI will be one year from the date
of granting in-principle approval and would thereafter lapse automatically. Therefore, the
bank will have to be set up within one year of granting the in-principle approval.

(vii) After issue of the in-principle approval for setting up of a bank, if any adverse
features are noticed subsequently regarding the Promoters or the companies/entities with
which the Promoters are associated and the group in which they have interest, the RBI
may impose additional conditions and if warranted, it may withdraw the in-principle
approval.

(viii) In order to ensure transparency, the names of the applicants for bank licences will be
placed on the RBI website after the last date of receipt of the applications.
5. Vission of RBI norms for banking licence.
The Reserve Bank of India (RBI) has periodically released rules for the issuance of
banking licenses to firms interested in creating new banks as of my most recent update in
September 2021. Here is a rough description of what the RBI normally looks for in
applicants for banking licenses, but specifics may have changed since then.

 Fit and Proper Criteria*: RBI assesses the "fit and proper" status of applicants,
ensuring they have a sound track record of financial prudence, integrity, and
competence in managing financial institutions.

 Capital Adequacy*: Applicants are expected to meet RBI's stipulated minimum

capital requirements to ensure the stability and viability of the proposed bank.

 Business Plan and Model*: RBI evaluates the business plan and model proposed by
the applicant, ensuring it is viable, sustainable, and in line with the banking
regulations and the broader economic environment.

 Corporate Governance*: Applicants must demonstrate strong corporate governance

practices, including a well-defined board structure, risk management mechanisms,
and compliance with RBI's guidelines on governance.

 Financial Inclusion*: A focus on financial inclusion and outreach to underserved

areas and sectors is often emphasized, ensuring that the proposed bank contributes
to inclusive growth and broader economic development.

 Compliance and Regulatory Norms*: Applicants must comply with all existing
regulatory norms, both from RBI and other relevant regulatory authorities, and
showcase a commitment to ongoing compliance.
  Technology and Risk Management*: Demonstrating robust technological
infrastructure and comprehensive risk management frameworks to ensure the safety
of deposits and effective operations.

 Background Checks*: RBI conducts thorough background checks on the promoters,

directors, and key executives to ensure they meet the fit and proper criteria and have
the necessary experience and expertise.

 Foreign Investment Regulations*: Compliance with RBI's regulations regarding

foreign investment and ownership in banks if applicable.

6. Mission of RBI norms for banking licence

When evaluating applications for banking licenses, the Reserve Bank of India (RBI)
establishes distinct aims and goals. These initiatives seek to guarantee a strong and stable
banking system that meets the needs of the nation's economy and people. here is a
summary of the mission goals based on broad RBI targets:
 Financial Stability: Promoting a stable and resilient financial system that can
effectively absorb shocks and contribute to overall economic stability.

 Customer Protection and Fair Practices*: Ensuring that banks adhere to fair
practices, provide transparent services, and prioritize the protection of customers'
interests.

 Financial Inclusion and Outreach*: Encouraging new banks to reach out to

underserved and remote areas, fostering financial inclusion and broader access to
banking services.

 Promoting Competition and Efficiency*: Encouraging healthy competition in the

banking sector to improve efficiency, innovation, and customer service.
 Compliance and Regulatory Adherence*: Ensuring strict adherence to regulatory
and compliance norms, which are vital for the health and credibility of the banking
industry.

 Technological Advancement and Innovation*: Encouraging banks to adopt cutting-

edge technology and innovative practices to improve service delivery, operational
efficiency, and security.

 Prudent Risk Management*: Stressing the importance of robust risk management

systems to safeguard the interests of depositors and maintain the overall stability of
the financial system.

 Corporate Governance and Transparency*: Promoting good corporate governance

practices and fostering transparency and accountability within the banking sector.

 Sustainable Growth and Development*: Encouraging sustainable growth and

development in the banking industry that aligns with the broader economic goals of
the country.
7. Objectives OF RBI norms for banking licence
These mission objectives guide RBI in evaluating applications for banking licenses,
ensuring that new banks align with these goals and contribute positively to the Indian
banking landscape. For the most up-to-date and precise information on RBI's mission
objectives for banking licenses.
 Promoting Financial Stability: Ensuring that new banks contribute to the stability of
the financial system by maintaining adequate capital, adhering to risk management
practices, and withstanding economic shocks.

 Customer Protection and Fair Practices*: Upholding the interests of customers by

enforcing fair practices, ethical conduct, and transparency in the operations and
services offered by the banks.

 Financial Inclusion*: Encouraging banks to expand their services to underprivileged

and unbanked regions, promoting financial inclusion, and reducing the disparity in
access to banking services.

 Enhancing Competition and Efficiency*: Fostering a competitive banking

environment to improve efficiency, innovation, and overall service quality in the
banking industry.

 Compliance and Regulatory Adherence*: Ensuring strict adherence to regulatory

guidelines, prudential norms, and legal requirements to maintain the integrity and
credibility of the banking sector.

 Technological Innovation and Security*: Encouraging banks to embrace

technological advancements and maintain robust cybersecurity measures to ensure
the safety and efficiency of banking operations.
 Risk Management and Prudential Norms*: Emphasizing the importance of prudent
risk management practices, including credit risk, market risk, and operational risk,
to safeguard the interests of depositors and stakeholders.

 Corporate Governance and Transparency*: Promoting sound corporate governance

practices and transparent reporting mechanisms to build trust among stakeholders
and the public.

 Long-term Sustainable Growth*: Ensuring that new banks have a sustainable

business model that supports long-term growth, financial health, and stability,
aligning with the broader economic development goals.

 Aligned with National Priorities*: Aligning the objectives and operations of new
banks with the broader national economic priorities, policies, and developmental
goals set by the government.
 CHAPTER 2
LITERATURE REVIEW
Dhiraj Jain(2014). The given paper suggest Differentiated Bank Licences: The failure
of various companies not getting a banking license from RBI and being asked to go back
to the drawing board and draft a new application for differentiated permits instead of a full
license is a clear indication from the RBI for a greater financial inclusion. According to
one of the reports the differential banking activity licenses issued to Regional Rural Banks
and Local Area Banks (LABs) could not achieve the objectives for which they were set
out which prompted authorities to call for larger size banks to go for rapid financial
inclusion in a timed bound and a phased manner. Unlike a single universal bank license
which is a blanket license from the RBI allowing banks to offer a range of services, a
differentiated license will allow banks to offer specialized services in select verticals like
project financing, mortgage banking, industrial financing, etc. Though differentiated banks
like cooperative banks, agricultural banks, foreign banks, financial institutions and NBFCs
have been a part of the Indian Financial System for long, only a single class of banking
license were issued for both domestic and foreign banks and all of them had enjoyed full
and equal access to the payment and the settlement system and the deposit insurance
cover. But with the introduction of differentiated bank licenses, newer dimensions of
banking would emerge and whether this initiative would be able to fulfill the broader
objective of financial inclusion or is the idea of a differentiated bank a little premature is a
matter of discussion.
The differentiated banking practices have been in practice in a number of countries like
Singapore, Indonesia, Australia , U.K. & Hong Kong and have been a success there. In
India the banks registered as differentiated banks would specialize only in one area of
banking thereby leading to higher risk and higher asset-liability mismatches. The Nachiket
Mor panel has provided certain recommendations for the setting up of differentiated banks
which could be useful. The major challenge that could arise for the regulator is whether it
would be able to maintain the systemic stability in the banking system and whether this
initiative could prevent banks to indulge in regulatory arbitraging having the lucrative part
of the business going to a lot of players and universal bankers being cross-subsidised. The
following study tries to understand the relevance of the differentiated bank licenses in the
Indian context, the need to have them and to identify the major threats, opportunities and
challenges that would emerge due to their emergence.

Akshay Kumar Mishra (June 2019). The study suggest that This concept is not
new as differentiated banking licensing practices exist in developed countries
like Singapore, London and Hong Kong (The Economic Times, 2007). In India, RRBs and
Local area banks have not achieved their objectives for differentiated banking licenses
issued by the authority and thus larger banks are asked to go for rapid financial inclusion
(Jain, 2014).
Banking in India should meet the new challenges of technological change along with other
external and internal factors (Manikyam, 2014). Payment Banks and Small Banks are
niches or differentiated banks with the common objective of furthering financial inclusion,
and the impetus to license niche banks arises out of the need to spread such inclusion in
the country .
The healthy Banking sector is one the important pillars for the development of every
economy in the world. The financial sector can strengthen by improving its participant and
product and services to be offered by adopting innovation and new methods. The banking
sector has witnessed many phases of development in India. Many intuitions in India has
received banking license as payment and small bank to target banking niche from the
Reserve Bank of India, recently. The differentiated bank licensing will enable these banks
to grab opportunities and untapped markets of the banking sector. This paper will discuss
the concept of differentiated banking and prospect from an Indian perspective.
The RBI’s concern over financial inclusion and development of rural and unbanked
masses could achieve a new high with licensing payment and small banks under a
differentiated banking model. The banks under this approach will be able to reduce misuse
of their funds as well as new differentiated banks will grab diverse opportunities and
untapped markets. The differentiated bank will differentiate from other banks for example
the payment banks will be looking for payment but not for credit. For the development of
the financial sector as well as the economy the depth can be increased by increasing the
number of participants and services in the financial sector. This can be achieved with
innovation at both the front of participants and products and services to be offered. This
mechanism is inevitable and significant for development. It will emerge as a great
challenge for the regulators and participants in terms of supervising and risk management.

Banking structure for India, Centre for Advanced Financial Research and
Learning (CAFRAL),March 2014. This given paper defines differentiated Licenses
for New varieties of Banks. In India, the universal banking model is followed. As regards
the structure of universal banks,
the conglomerate structure is bank-led, i.e., banks themselves are holding companies
which operate certain businesses through Subsidiaries, Joint Ventures and Affiliates. The
policy has evolved over a period of time and inevitably there are legacy issues. The current
policy has been expounded in the FAQs on the New Banks Guidelines dated 3rd June
2013. The general principle in this regard is that there should be a move towards a
NOFHC ( Non Operating Financial Holding Company) ; para-banking activities, such as
credit cards, primary dealer, leasing, hire purchase, factoring etc., can be conducted either
inside the bank departmentally or outside the bank through subsidiary/ joint venture
/associate. Activities such as insurance, stock broking, asset management, asset
reconstruction, venture capital funding and infrastructure financing through Infrastructure
Development Fund (IDF) sponsored by the bank can be undertaken only outside the bank.
Lending activities must be conducted from inside the bank. Investment banking and
insurance services can be provided by the universal banks as an in-
house departmental activity or through subsidiary in the manner described above.
However, limits on equity investments, by a bank in a subsidiary company, or a financial
services company including financial institutions, stock and other exchanges, depositories,
etc., which is not a subsidiary restrict expansion of investment banking services and
insurance business by the universal banks. Consequently, India does not have large
investment banking and insurance activity within the banking groups. India also does not
have stand-alone investment banks.
However, SEBI does register various intermediaries under its regulations such as stock
brokers, mutual funds, portfolio managers and merchant bankers etc. There is a belief that
there are relatively few strategic options for banks to specialize in a particular field or
niche market because the CRR, SLR, and PSL requirements dictate a sizeable portion of
asset allocation. It is in this context that specialized licensing is an option. With
Considering the widening and development of the financial industry, banks are required to
relocate from the from a scenario where all banks offer every service to one where banks
identify their unique needs They primarily offer services in their specialty areas.
As a result of the new Basel III regulations and the RBI's Risk Based Supervision
framework, each bank will progressively need to become stronger from the ground up,
concentrate more intently on their core competencies, and have the flexibility and
mandate from the regulatory body to actively work with other market participants who
have abilities that are complementary.

JAIN, JITIN VERMA (2013). This paper suggest that RBI released the Guidelines
for “Licensing of New Banks in the Private Sector” on February 22, 2013. The objective
of these guidelines has been to frame a policy structure of new private sector banks and
guide the applicants to the selection process. It has been a great opportunity for the private
and public sector players to participate in the banking sector which has been growing at a
high rate of around 20% since the last decade.
However, RBI received 100 applications in 1993 and 113 in 2003 in the first two rounds
of granting licences, it got only 26 this time, when about 200 applications were expected.
The response from the private sector has been lukewarm and many big players such as
Reliance Industries have eventually decided not to apply. This development needs to be
investigated in light of how the similar policy had positively impacted the banking
industry in 2003 and what should be the more appropriate frame work in current
macroeconomic conditions. Since India's economic liberalization, the Reserve Bank of
India (RBI) has granted twelve private sector banks licenses. There were two stages to
this. On the basis of the directives given in January 1993, ten banks received licenses. On
the basis of the knowledge obtained from the operation of these banks, the regulations
were changed in January 2001, and Kotak Mahindra Bank and Yes Bank each received
two additional licenses. India currently has 56 regional rural banks, 22 private sector
banks, and 27 public sector banks.
Dhiraj jain( 2013). The given study suggest the differentiated banks licenses:
Emergence of New Bank Structure. Differentiated banks are a new kind of banks which
would be set up in order to ensure greater financial inclusion and financial penetration.
How would they fare and how they would help in the emergence of a new structure is yet
to be seen. The Central Bank the RBI - has started framing the guidelines for the same.
RBI has not yet issued any clear cut guidelines on differentiated banks or 'on-tap' licences ,
the governor claims it will be done by the end of 2014 .
This initiative by the RBI would be able to fulfill the broader objective of financial
inclusion and help make India a better banked country But, the real challenge before the
regulator would be two-fold. One is that of maintaining systemic stability while
encouraging the presence of different kinds of banks, and two is to make sure that no bank
indulges in regulatory arbitraging.
Under the existing norms, every bank is required to keep a fixed percentage of its deposits
with RBI in the form of Cash Reserve Ratio on which it does not earn any interest; invest a
fixed percentage of its NDTL balances in government bonds / approved securities in the
form of Statutory Liquidity Ratio ; and a fixed percentage of its loan book must consist of
agriculture and small loans. Once different kinds of banks come into existence, these
norms would not be uniformly applicable to all. The banking landscape would change with
the coming of these newcomers. Issuing new bank licenses is just one aspect of larger
financial sector reforms and both the government and the new RBI Governor Raghuram
Rajan are committed to them. There could be significant policy level directions in the
areas of consolidation and presence of foreign banks in India and there could also be a
complete reorientation of the banking structure.

Sharma, Akash(2013). The study suggest that Licencing new private banks.
The corporate governance of banks is of vital importance due to the crucial role that banks
play in an economy. The issue of corporate governance has become more important at this
point of time when the Reserve Bank of India (RBI) is considering issuing licenses for
new private sector banks given the recent scandals in the banking and financial services
industry. This paper discusses why corporate governance is important for banks, especially
from emerging economies point of view.
The Reserve Bank of India's discussion paper on entry of new banks in the private sector
lists a number of issues in the next round of licensing of such banks. If the new private
banks are to focus on inclusion, then a number of possible candidates including industrial
house would possibly be ruled out. Deep pockets, sound governance and an appetite for
financial inclusion are not terribly common and these requirements cannot be relaxed
merely in order to have more players.
The paper briefly discusses the current structure of banking industry in India, the need for
new banks, the existing guidelines of RBI for issuing licenses to new private sector banks
and the similar prevalent guidelines by regulatory authorities in other parts of the world.
The corporate governance issues faced by Indian banks are also discussed.
The views on whether the current guidelines by RBI take necessary precautions to prevent
the instances of corporate governance failure, whether corporate houses should be allotted
banking licenses, challenges that would arise if applicants are allotted banking licenses
based on their profile are also expressed in this paper. Finally, the policy changes that RBI
can adopt to promote banking activities in the unbanked sector of India while improving
the quality of banking services have been prescribed.

Banking Licensing in India–Past and Future: Chitta, Shyamsunder, 2018

The paper discuss the banking is an issue in India, from financial inclusion perspective,
considering access to bank credit and services through expansion of banks in unbanked
and under-banked regions is of utmost importance.
The specific risks on account of the business model may have to be addressed by
calibrating the prudential regulations together with developing the resolution regime and
process reorientation for shortening the time period for settlement of deposit insurance
claim. In the deregulated interest rate regime, the small banks will have freedom to decide
their lending rates based on the cost of funds. Similarly, the improvement in
communication facilities would enable them to reap the efficiency gains driven by
technology similar to the medium and large banks. The approval of licences for IDFC Ltd
and Bandhan Financial Services marks the start of a cautious experiment for a sector
dominated by lethargic state lenders, many of which are reluctant to expand into rural
areas or towns where banking penetration is low.
The predominance of government owned banks in India has contributed to financial
stability in the country, and experiences have shown that even the deterioration in bank
financials does not lead to erosion of consumer confidence in such banks, which does not
extend to private sector banks (Mohan, 2006)
. Apart from that, during the recent global financial crisis, public-ownership has positive
implications for financial stability as deposits migrated from the private sector banks to
public sector banks. Also, retail deposits in Indian PSBs increased in contrast to the banks
in advanced economies where there was a liquidity crisis due to deposit run, as a result of
which there was a need for blanket extension of deposit insurance across Europe. Hence,
we may conclude that, in order to achieve the objectives of adequacy of credit and
financial inclusion, it may be necessary to expand the number of banks and the size of the
banking sector. However, such expansion is unlikely to come about from public banks
given the fiscal costs
involved in providing continuous capital support to these institutions. Hence, there is a
need to boost the presence of private banks, while consolidating the existing public
banking system.

Jordan Investment Bank (2005). The given paper suggest norms for finance and
banking. Converting into a small finance bank will allow these players to scale up
profitability After granting licences to 10 players to set up small finance banks (SFBs) four
years ago, the RBI has announced guidelines for on-tap licensing of SFBs to widen the
competition. Aside from the higher minimum capital and revision in timelines for bringing
down promoter shareholding, the guidelines for on-tap licensing are similar to those laid
down earlier. Existing NBFCs, MFIs, local area banks and payments banks, too, can opt to
convert into an SFB, but will have to fulfil the ‘fit and proper’ criteria.
As an SFB, these players can lend, but will have to meet the norm of extending 75 per
cent of loans to the priority sector and have at least 50 per cent of loans up to Rs 25
lakh. They will also have to comply with cash reserve ratio (CRR) and statutory
liquidity ratio (SLR) requirements from Day One of their conversion into a bank.
The on-tap guidelines, however, set a higher capital requirement of Rs 200 crore (from
Rs 100 crore earlier) and have a different promoter exit timeline. Under the earlier
guidelines, shareholding by promoters in the bank had to be brought down to 40 per
cent within three years, and subsequently to 30 per cent within 10 years, and to 26 per
cent within 12 years.
Under the on-tap licensing guidelines, shareholding by promoters in the bank has to be
brought down to 40 per cent within five years, and subsequently to 30 per cent within 10
years, and to 15 per cent within 15 years.
While the RBI had given payments bank licences to as many as 11 players four years ago,
only six are operational currently. Payments banks are challenged by their underlying
business model. Unlike traditional banks that lend money raised from deposits, payments
banks cannot engage in any lending activity.Their income derives mostly interest from
investments in safe government securities and fee income that they can earn by
distributing financial products such as mutual funds and insurance.Under the RBI
guidelines, payments banks are allowed to take deposits only up to Rs 1 lakh per account.
They also need to invest 75 per cent of their deposits in government securities with
maturity up to one year; the balance 25 per cent can be parked with commercial banks.
Hence, they operate on thin margins. They have to compete with traditional banks, as well
as existing small finance banks, for deposits.Paytm Payments Bank, however, managed to
report a Rs 19-crore profit for fiscal 2018-19, the first payments bank in India to make a
profit. Under the existing framework, the RBI issues licences for SFBs in batches i.e. all
the applications are reviewed in a decided time frame and approvals for a number of SFBs
are issued at once. The RBI doesn’t give out approvals as and when applications are
received. Rather, when sufficient number of applications are received, they are reviewed at
once and the applications that satisfy RBI’s criteria are issued with licenses.
Under the ‘on-tap’ mechanism, RBI will initiate the review of applications as and when
they are received. Individual applications will be reviewed and licenses will be issued
accordingly.
REDDY, Y. V. (2010). Financial Sector Regulation in India. Economic and
Political Weekly. This given research paper brings out Financial Sector regulations in
the country.
In India, the mandate for the Reserve Bank of India ( rbi ) is very broad. It was interpreted
to mean the dual objectives of growth and price stability, the relative emphasis depending
on the context. The rbi reinterpreted this a few years ago by adding financial stability to
the financial sector.
Financial sector reform has taken a new meaning all over the world. Until the global crisis,
reform of the financial sector meant deregulation. Today's truth is that, globally, reform of
the financial sector means reregulation and improving the quality as well as effectiveness
of regulation.

Rajib Dutta (8, 2020) The given paper briefly discuss shadow banking in India.
Banking Industry is the ‘mover’ in any economy, Shadow Banking (especially the Non
Banking Finance Institutions/Corporations) is but the vital cog in its armoury. Non-
Banking Financial Institutions/Companies (NBFIs/ NBFCs) are entities or institutions that
provide certain bank-like and financial services, but do not hold a banking license.
NBFCs/NBFIs play many essential roles that banks fail to act upon. They provide
complementary services to the economy. Indeed this ‘shadow banking’.
As mentioned in www.rbi.org.in, Reserve Bank of India regulates the working and
operations of the Non-Banking Finance Companies within the framework of the Reserve
Bank of India Act, 1934 (Chapter III-B) and the directions issued accordingly As per the
new RBI norms issued on 09.11.17, Non-Banking Finance Companies, are restricted to
outsource core management functions like internal audit, management of investment
portfolio, strategic functions for KYC, compliance functions, sanction of loans, etc. The
Reserve Bank, under the RBI Act 1934, has been given the powers to register, lay down
policy, issue directions, inspect, regulate, supervise and exercise surveillance over NBFCs
that meet the 50-50 criteria of principal business.
Maram Srikanth, Puvvala Siva Rama Prasad, Palanisamy Saravanan (13,
2021)
The given study suggest licensing of small finance banks. the Government of India
through the Reserve Bank of India (RBI) experimented with the SFB model by issuing
licences to local area banks (LABs) way back in August 1996 to provide low-cost,
efficient, and competitive financial services in semi-urban and rural India. As labs are non-
scheduled banks, they cannot borrow funds from the RBI. Though the RBI issued licences
to 10 labs, only four labs are operating satisfactorily as on today.
Later, the RBI issued provisional licences to 10 entities, mostly microfinance institutions.
in September 2015 to convert themselves into the SFBs within a period of one year. As on
date, all these licensed entities have beentransformed into SFBs; out of which, three SFBs,
namely AU Small Finance Bank, Ujjivan Small Finance Bank and Equitas Small Finance
Bank have been listed both on National Stock Exchange (NSE)and Bombay Stock
Exchange (BSE) by complying with the regulatory guide-lines and listing requirements.
The SFB scan create value to their stakeholders in three major ways: (i) furthering
financial inclusion, (ii) achieving satisfactory track record of performance, and (iii) listing
on a recognised stock exchange.
Saptarshi Ghosh, Mahmood Bagheri(2006) The purposes in this paper are:
engaging in a critical examination of the framework of the banking regulatory framework
in India; assessing the operational efficacy of banking regulatory and supervisory
mechanisms; and providing an in‐depth legal analysis of the role of the Reserve Bank of
India (RBI) as the country's central bank and the principal supervisory authority. The
method used is legal examination of regulatory practice and case‐study based analysis. It
relies factually on official publications in the public domain, academic writings and
newspaper reports to assess the impact of the fraud and explore the legal, regulatory and
financial implications of the supervisory lapses. The paper concludes that such lapses can
induce systemic problems in a key emerging economy like India especially when it is
rapidly entering the second phase of major banking and financial reforms. It is of immense
significance to bankers, lawyers, auditors, consultants, researchers, jurists, law
enforcement officials and those involved in financial and banking regulation.
 CHAPTER 3
RESEARCH METHODOLOGY
Research Methodology is the process used to collect information and data for the purpose
of making business decisions.It refers to the specific procedures or techniques used to
identify, select, process, and analyse information about this topic. In a research paper the
methodology section allows the reader to critically evaluate a study’s overall validity and
reliability. The methodology section answers the two main questions such as how the data
was generated and how it was analyzed. The main purpose of research methodology is to
encourage the spirit of enquiry and it also fulfils the mandatory requirements prescribed
for a particular research study.

3.1. Research Design

Research design is the framework of research methods and techniques chosen by the
researcher. The design allows the researcher to hone in on research methods that are
suitable for the subject matter and set up his studies for success.

3.2. Type of Research

The present study topic is going to be based on Descriptive Research and Explanatory
Research.

3.4. Method of Research

This research would be conducted using the Random Sampling Method.

3.5 Scope of the study

Studying RBI norms for banking licenses involves understanding the regulatory
framework set by the Reserve Bank of India (RBI) for granting licenses to banks. Our
research focused analysis of the processes, methods, and approaches used to study and
understand the regulatory framework set by RBI. This study includes examining the
historical development of all these norms and evaluating the effectiveness of the
guidelines makes the impact of these norms on the banking sector.

3.6 Limitations of the study

 This study is based on baking rules, hence rules can change quickly thus making the
study outdated fast.
 This study need current and comprehensive data, but complete data may be
restricted or unavailable to the general public
 The study is based on secondary data. Therefore, the limitations of secondary data
will gradually emerge and this will also affect the research.

3.7Significance of Study
Studying RBI norms for banking licenses holds immense significance due to several
reasons. Understanding and researching these norms are pivotal for maintaining banking
system, contributing to economic growth, and ensuring the well-being of consumers and
financial institution.

Regulatory Compliance: Understanding and adhering to these norms is essential for

banks to operate legally and maintain compliance with RBI regulations.
Financial Stability: Compliance with these norms contributes to the stability and
reliability of the financial sector, ensuring a strong foundation for economic growth.
Consumer Protection: These norms often include provisions to safeguard the interests of
consumers, ensuring fair practices and protection against malpractices.
Investor Confidence: Transparent compliance with these regulations enhances investor
trust and confidence, attracting investments into the banking sector.
3.8 OBJECTIVES OF STUDY
 Examine the role of the financial sector in financial securities
 Know RBIs rules and regulations for Banks effective management
 Study the relation between RBI and banks.
 Provide recommendations to bankers to improve their performance
 Learn about the effectiveness of corporate governance, technology , etc.

3.9 REFERENCE/BIBILOGRAPHY
 REDDY, Y. V. (2010). Financial Sector Regulation in India. Economic and
Political Weekly, 45(14), 40–50. http://www.jstor.org/stable/25664304
 Jain, Dhiraj, Differentiated Bank Licences: Emergence of a New Bank Structure
(June 1, 2014). Pacific Business Review International, Volume 6, Issue 12, June
2014, Available at SSRN: https://ssrn.com/abstract=2659015
 ShadowbankingRajibDutta https://papers.ssrn.com/sol3/papers.cfm?
abstract_id=3758505
 https://www.researchgate.net/profile/Palanisamy-Saravanan-3/publication/
352152130_Small_Finance_Banks_Creating_Value_for_Stakeholders/links/
60bb451fa6fdcc22eada6b3d/Small-Finance-Banks-Creating-Value-for-
Stakeholders.pdf
 RBISaptarshiGhosh,MahmoodBagheri
https://www.emerald.com/insight/content/doi/10.1108/13590790610641279/full/
html