The race to get private banking licences is going to be tough for the companies as the Reserve Bank of India (RBI) will be selective in issuing permits.
The banking regulator, which has given 12 licences since 1993-94, will ensure that selected applicants are 'fit and proper' and there is no conflict of interest between the bank and group companies.
"The NOFHC (non-operative financial holding company) model will ring-fence the bank and other financial services businesses from other group companies enabling better supervision by the RBI, as well as capital protection," said Monish Shah, senior director, Deloitte India.
In the final banking guidelines, the central bank has stipulated that promoter will be permitted to set up a bank only through wholly-owned NOFHC and all non-financial companies should be out of the holding company.
The apprehension regarding allowing industrial houses to set up banks is that the group may divert depositor's money with the bank to its group companies, but experts feel that the RBI norms and supervisory powers will not let it happen.
"After the bank is set up, the RBI will have authority to supervise it, the NOFHC and its subsidiaries, joint ventures and associates," said Kajal Gandhi, banking analyst, ICICIdirect.com.
Though, the applications for the banking licence are expected to be around 100, the banking sector regulator is expected to issue around 10 licenses. The banking licences are expected to be issued by March 2014.