<\/span><\/h2>\n\n\n\nThe\nimportance of bank is represented under Section 5 of the Banking Regulation Act,\n1949<\/em><\/strong>. Any company which is formed or established for the objective of\nlending or execute any form of investments in the form of money, money\ndeposits, and repayable when asked by the public or its on-demand. A company\nthat carries out all such activities is known as a Banking Company.<\/p>\n\n\n\n<\/span>What\nare the Advantages of Conversion of NBFC into a Bank?<\/strong><\/span><\/h2>\n\n\n\nFollowing are some advantages of Conversion of NBFC into a Bank:<\/p>\n\n\n\n
More Reputation<\/em><\/strong>: A\nNon-Banking Financial Company converted into a bank would protect more\nreputation from the general public. All the different types of digital products\ncan be promoted directly to the customer utilizing this procedure. Moreover,\nthere can be direct marketing of products to customers who come and use the\nbank\u2019s services.<\/li>Accepting of Deposits<\/em><\/strong>: Extra\namount of low-cost deposits can be accepted by a Bank when compared to that of\na Non-Banking Financial Company. Bank services are for all different types of\ncustomers and not just only a particular group of customers. So, the low cost\nand interest-bearing deposits would be available to all types of customers.<\/li>High Amount of Liquidity<\/em><\/strong>: When\na Non-Banking Financial Company is converted into a bank, there would be high\namounts of liquid funds available to customers. More customers would consider financing\nin the activities which are carried out by a bank. More investment in the\ncompany means more liquidity for the bank.<\/li>Insurance Based Services<\/em><\/strong>: Once\nthe conversion of NBFC into a Bank has done, then they can carry out other\ntypes of activities. Some of the services offered would be insurance-based\nservices. But, the bank has to make sure to take prior permission and mandatory\ncompliance from the IRDAI (Insurance Regulatory and Development Authority)\nregarding the same.<\/li>Initial Public Offering<\/em><\/strong>: After\nthe conversion of NBFC into a Bank, the bank can begin the procedure for an\ninitial public offering. The bank must comply with the necessities of the SEBI\n(LODR) Regulations<\/em><\/strong> for carrying out this procedure. Reaching out to the\ngeneral public as a bank is quicker when compared to that of a Non-Banking\nFinancial Company.<\/li>Company can Draw Cheques<\/em><\/strong>: A\nNon-Banking Financial Company cannot draw DD (Demand Drafts) and cheques.\nGenerally, the customer would go to the bank to credit money in their accounts\nthrough the cheques drawn in favour of the payee. Such facilities are not\npermitted in a Non-Banking Financial Company. Therefore, the conversion of NBFC\ninto a Bank would permit cheques to be drawn.<\/li><\/ol>\n\n\n\n<\/span>Eligibility\nCriteria for Converting NBFC into a Bank<\/strong><\/span><\/h2>\n\n\n\nFollowing\nis the list of important criteria that should be fulfilled before converting\nNBFC into a Bank:<\/p>\n\n\n\n
For a newly established bank, the minimum\npaid-up capital is Rs. 200 crores. The initial capital is increased to Rs. 300\ncrore within 3 years of the beginning of activities of the business of the\nbank.<\/li> The total contribution of the promoters must be\n40% of the paid-up money of the bank.<\/li> The initial money which is provided for the\npurposes of liquidity can be taken by some form of private\/public placements.<\/li> Initially, the capital has to be Rs. 200 crores\nand after that, it has to increase up to Rs. 300 crores within 3 years of the\nbeginning of the business. But, the promoters have to collect extra money,\nwhich will amount to 40% of the newly generated money. <\/li> The capital will be locked for at least five\nyears from the date of capital receipt by the bank.<\/li> The bank should maintain on a regular basis a\nminimum Capital Adequacy Ratio (CAR)<\/em><\/strong> of 10%.<\/li>The fresh bank would be omitted to open 25% of\nits semi-urban and rural branches.<\/li> The headquarters of a new bank could be anywhere\nin India, as the promoters have agreed.<\/li> The newly established bank should be regulated\nby the provisions of the Banking Regulation Act, 1949, RBI Act, 1934<\/em><\/strong>,\nother related laws and SEBI Regulations on public matters and other strategies\nregarding the banks listed.<\/li>The suggested\nbank should maintain an arm’s length relationship with the promoter business entity\nand other branches.<\/li> The relationship between the group of promoter\nbusiness entities and the proposed bank will be like that between two\nindividual and unconnected entities.<\/li> As relevant\nto other domestic banks, the newly established bank would have to experience a\npriority sector lending target of 40% of net bank credit.<\/li> The\nestablishment of a mutual fund or a subsidiary will not be allowed by the newly\nestablished bank for at least three years from the beginning of the company.<\/li> An\nindustrial firm will not be funded by the newly established bank. However,\nseparate companies that are indirectly or directly connected to huge industrial\nfirms can be permitted to invest in the equity of a newly established private\nsector bank up to a limit of 10% that would not have managed interest in the\nbank.<\/li><\/ol>\n\n\n\n<\/span>Vital\nDocuments Required for Converting NBFC into a Bank<\/strong><\/span><\/h2>\n\n\n\nFollowing\nare some vital documents required at the time of conversion of NBFC into a Bank:<\/p>\n\n\n\n
Submit a Certificate of Registration of the\nCompany;<\/li> Submit a copy of MOA (Memorandum of Association)\nand AOA (Articles of Association);<\/li> Submit auditors report;<\/li> Submit an approval letter from the Reserve Bank\nof India (RBI);<\/li> Submit any information related to maintaining\nliquidity;<\/li> Submit KYC (Know Your Customer) documents of\nmember and directors;<\/li> Submit Board Resolution related to the process\nof conversion;<\/li> Summit any other relevant documentation as\nrequired by the RBI.<\/li><\/ol>\n\n\n\n