1. In order to facilitate the banks and financial institutions
to strengthen their competitive ability both domestically and
internationally, to help them become more cost effective by
upgrading their technology and eliminating avoidable expenses,
to build up their equity structure to the levels where the interests
of depositors are adequately protected and to encourage the
economies of scale and economies of scope in this sector, it
has been decided to revise the minimum capital requirement for
the banks. Accordingly, the banks are directed as follows:-
a) No banking company shall be permitted to
undertake a full range of financial services unless and until
it has a minimum paid up capital, net of losses, of Rupees
one billion on or after 1st January 2003.
b) A banking company not meeting the minimum
capital requirement as set hereinabove, shall ipso facto stand
de-scheduled, and converted into a Non-scheduled bank (NSB)
with effect from the dates as determined below:
i. On 1st January 2002 if it does not have
a minimum paid-up capital, net of losses, of Rupees 750 million.
ii.
On 1st January 2003 if it does not have a minimum paid-up
capital, net of losses, of Rupees One billion.
c)
Where a banking company so de-scheduled is short in meeting
the minimum capital requirement of Rupees One billion by more
than 25%, such Non-Scheduled Bank (NSB) shall not be eligible
to collect deposits from the individuals including partnerships/sole
proprietors, or provide any financial services to individuals
including sole proprietors. Such NSBs shall only be permitted
to operate in inter-bank market, make investments in government
securities, and finance import/ export business within such
limits as may be specified by the State Bank, on case to case
basis.
d)
Where a banking company so de-scheduled is short in meeting
the minimum capital requirements of Rupees One billion by
not more than 25 per cent, the State Bank on a request made
to it in this behalf, may allow the banking company to continue
accepting the deposits from their corporate/institutional
depositors only upto the limit of total deposits mobilized
by it as on 31st December, 2000 or total outstanding deposits
as on 30th November 2000, which ever is lower, and provide
such other support financial services as may be specifically
allowed by the State Bank.
2. Where a bank or group of banks which meets
the minimum capital requirements set up a subsidiary NSB,
with the prior approval of the State Bank, for undertaking
any one or set of specialized banking service to a specified
segment of the market, the condition of minimum capital requirement
shall not apply to such an affiliated Non-Scheduled Bank (NSB).
3. New banking licences specifying the range
of banking activities shall be issued to all banking companies
on the basis of paid-up capital to be raised by them by the
due dates as stipulated in para 1 above.
4. The instructions regarding maintenance
of capital and unencumbered general reserves for the purposes
of the minimum capital requirements based on risk weighted
assets and other instructions on the subject shall, however,
remain unchanged.
Please acknowledge receipt.
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