MCQs on Licensing of Universal Banks

Correct Answer: B. Individuals / professionals with 10 years of experience in banking and finance at a senior level. According to the guidelines, individuals / professionals who are residents and have 10 years of experience in banking and finance at a senior level are eligible to promote banks, singly or jointly.

Correct Answer: A. Non-financial business accounting for 40% or more in terms of total assets / gross income. Entities / groups in the private sector with total assets of ₹ 50 billion or more must ensure that the non-financial business of the group does not account for 40% or more in terms of total assets / in terms of gross income to be eligible.

Correct Answer: D. Being ‘controlled by residents’ and having a successful track record for at least 10 years. Existing non-banking financial companies (NBFCs) that are ‘controlled by residents’ and have a successful track record for at least 10 years are eligible to convert into a bank or promote a new bank.

Correct Answer: B. Non-financial business accounting for 40% or more in terms of total assets / gross income. If an eligible NBFC is part of a group with total assets of ₹ 50 billion or more, it is not eligible if the non-financial business of the group accounts for 40% or more in terms of total assets / in terms of gross income.

Correct Answer: C. Minimum 10 years of experience in banking and finance at a senior level. Individuals acting as promoters should each have a minimum of 10 years of experience in banking and finance at a senior level for their ‘fit and proper’ assessment.

Correct Answer: C. Minimum 10 years of sound credentials and integrity. Both individual and entity promoters should have a past record of sound credentials and integrity, with a minimum of 10 years.

Correct Answer: C. Minimum 10 years of financial soundness. Promoting entities and promoter groups should be financially sound and should have a successful track record for at least 10 years.

Correct Answer: C. Entities with diversified shareholding. Preference is given to promoting entities having diversified shareholding.

Correct Answer: B. When promoters are individuals or standalone entities without other group entities. If promoters are individuals or standalone promoting entities without other group entities, the requirement of NOFHC is not mandatory initially.

Correct Answer: C. Any change in shareholding must be reported if it exceeds 5%. Any change in shareholding within the promoting entity that results in a shareholder acquiring or transferring five per cent or more of the voting equity capital must be reported to the RBI.

Correct Answer: B. Not less than 51% of the total paid-up equity capital. In the NOFHC structure, not less than 51% of the total paid-up equity capital must be owned by the Promoter / Promoter Group.

Correct Answer: B. To segregate the bank from other financial services entities. The NOFHC structure aims to ring fence the regulated financial services entities, including the bank, from other activities of the group not regulated by financial sector regulators.

Correct Answer: C. Three years. The NOFHC is not permitted to set up any new financial services entity for at least three years from the date of commencement of business.

Correct Answer: B. ₹ five billion. The initial minimum paid-up voting equity capital for a bank under the ‘on tap’ Licensing is ₹ five billion.

Correct Answer: B. ₹ five billion. In cases of conversion of NBFCs into banks, both the converting entity and the subsequent bank shall have a minimum net worth of ₹ five billion.

Correct Answer: C. Three years. A bank is required to maintain a minimum capital adequacy ratio of 13% of its risk-weighted assets (RWA) for a minimum period of three years after the commencement of its operations.

Correct Answer: C. Six years. The bank shall get its shares listed on the stock exchanges within six years of the commencement of business.

Correct Answer: B. 13% of RWA. The NOFHC shall maintain capital adequacy on a consolidated basis as per Basel norms, with a minimum of 13% of its risk-weighted assets (RWA) applicable to the entity.

Correct Answer: B. 40%. The promoter/s and the promoter group / NOFHC are required to hold a minimum of 40% of the paid-up voting equity capital of the bank, which is locked-in for a period of five years from the date of commencement of business.

Correct Answer: B. 10 years. The shareholding by promoter/s and the promoter group / NOFHC must be brought down to 30% of the paid-up voting equity capital of the bank within a period of 10 years from the date of commencement of business.

Correct Answer: B. 10%. Individuals and companies connected with large industrial houses may participate in the equity of a new private sector bank up to a maximum of 10% of the paid-up voting equity capital.

Correct Answer: C. Not more than 10%. No single entity or group, other than promoters / promoter group / NOFHC, shall have shareholding or control, directly or indirectly, in excess of 10% of the paid-up voting equity capital of the bank during the first five years of the operations of the bank.

Correct Answer: B. Companies Act, 2013. While the Companies Act applies to general corporate governance, specific banking laws take precedence for banks.

Correct Answer: C. Foreign Exchange Management Act, 1999. This act governs all foreign exchange-related activities in India.

Correct Answer: B. Deposit Insurance and Credit Guarantee Corporation Act, 1961. This act establishes a system of deposit insurance to safeguard depositors’ interests.

Correct Answer: B. Securities and Exchange Board of India (SEBI). SEBI regulates the securities market, including public issuance of shares.

Correct Answer: C. They are subject to a comprehensive framework of laws and guidelines from multiple regulators. The regulatory framework ensures financial stability, consumer protection, and adherence to best practices.

Correct Answer: B. 74%. The foreign shareholding in the bank is subject to the existing foreign direct investment (FDI) policy, and the aggregate foreign investment limit is mentioned as 74% in the provided content.

Correct Answer: A. Having exposure to entities with significant influence or control by promoters. The guidelines specify that the bank is precluded from having any exposure to its promoters, major shareholders with shareholding of 10 per cent or more, the relatives of the promoters, and entities in which they have significant influence or control.

Correct Answer: B. Promoters, major shareholders with 10% or more shareholding, relatives of promoters, and entities under their significant influence or control. This restriction aims to prevent conflicts of interest and ensure sound financial management.

Correct Answer: B. 10%. This threshold is set to identify major shareholders who could potentially exert significant influence or control over the bank.

Correct Answer: D. 25%. This mandate aims to promote financial inclusion and ensure access to banking services in underserved rural areas.

Correct Answer: C. Promote a bank or convert the NBFC into a bank. The Promoters/Promoter Groups with an existing NBFC have two options if considered eligible for a bank license: (i) promote a bank or (ii) convert the NBFC into a bank.

Correct Answer: C. Compliance with all the requirements laid down in the guidelines. Under both options, the NOFHC/the bank or both, as the case may be, should comply with all the requirements laid down in the guidelines.

Correct Answer: C. When the promoter shareholding is below 40% but above 26%. If the existing entities have diluted the promoter shareholding to below 40%, but above 26%, due to regulatory requirements or otherwise, RBI may not insist on the promoters’ minimum initial contribution as indicated in the guidelines, and the lock-in period of five years will apply to 26% promoter shareholding.

Correct Answer: C. With prior approval and subject to conformity/compliance with extant guidelines on branch authorization. RBI will consider allowing the retention of existing branches of the NBFC converting into a bank as bank branches with prior approval and subject to conformity/compliance with the extant guidelines on branch authorization.

Correct Answer: B. Assessment of eligibility by SEAC. At the first stage, the applications will be screened by RBI to assess the eligibility of the applicants vis-à-vis the criteria laid down in the guidelines. RBI may apply additional criteria, and then the applications will be referred to the Standing External Advisory Committee (SEAC).

Correct Answer: C. Screening applications and recommending to RBI. The SEAC will set up its own procedures for screening the applications, meet periodically, and reserve the right to call for more information. The Committee will submit its recommendations to RBI for consideration.

Correct Answer: B. Internal Screening Committee (ISC). The Internal Screening Committee (ISC), consisting of the Governor and the Deputy Governors, examines all the applications and deliberates on the rationale of the recommendations made by the SEAC.

Correct Answer: B. 18 months. The validity of the in-principle approval issued by RBI will be 18 months from the date of granting in-principle approval, and it would thereafter lapse automatically.

Correct Answer: D. Withdraw the in-principle approval. If any adverse features are noticed subsequently regarding the promoters or associated entities, RBI may impose additional conditions, and if warranted, it may withdraw the in-principle approval.

Correct Answer: C. Three years. An applicant who has not been found suitable for the issue of a license will not be eligible to make an application for a banking license for a period of three years from the date of that decision.

Correct Answer: C. On the RBI website. In order to ensure transparency, the names of the applicants for bank licenses will be placed on the RBI website periodically.

Correct Answer: B. Central Board of Directors. Applicants aggrieved by the decision of the Committee of the Central Board can prefer an appeal against the decision to the Central Board of Directors, within one month from the date of receipt of communication from RBI.