RBI’s internal working group recommends initiators to hold larger shares in private banks

MUMBAI: The Indian Reserve BankThe internal working group set up to review the ownership of Indian private banks has recommended that initiators hold 26% in banks over a period of 15 years. In its proposal, the working group has also taken advantage of allowing industrial houses as bank promoters only after making legislative changes to the EU. law on bank regulation.

It has also recommended raising the ceiling for non-promoter teams to 15% to create uniformity among all types of shareholders.

RBI will now seek stakeholder comments on the report until 15 January 2021, after which it will examine the comments and proposals before taking a position on the matter.

“The ceiling on the promoters’ long-term share (15 years) can be raised from the current level of 15% to 26% of the voting share capital paid in the bank,” said RBI, while releasing the recommendations of the internal working group. it is internal group.

The working group also noted that the issue of affiliated lending must be stretched before licenses for industrial houses are granted.

“Large companies / industrial houses are only allowed as promoters of banks after necessary changes to Banking Regulation Act, 1949 to prevent associated lending and exposures between banks and other financial and non-financial entities, ”the working group noted in its recommendations.

The internal working group set up in June 2020 consists of five members including PK Mohanty and Sachin Chaturvedi, who are both directors of RBI’s main board. Lily Vadera and SC Murmu, both CEOs of RBI, are also part of the group.

Efforts to balance ownership and control come as some private sector banks have sought a relaxation of licensing standards, citing the regulator’s decision to allow Kotak Mahindra Bank promoter Uday Kotak to own a 26% stake as long as the lender did not raise capital through a share sale.

RBI’s 2015 licensing rules require the initiator of a private bank to reduce its holdings to 40% within three years, 20% within 10 years and 15% within 15 years after the start of operations.

The rules previously allowed promoters to have 49%, but the regulator pushed for diversified ownership following the collapse of Global Trust Bank. RBI approval is required for a holding of 5% and more in a bank.

The working group has also suggested that large non-bank lenders with an asset size of more than Rs 50,000 crore, including those owned by a company house, could be considered for conversion to banks subject to termination of 10 years of operation. The group has also suggested that a 3-year track record would be sufficient for those payment banks wishing to convert to a small finance bank.

Some of the other recommendations suggest that small finance banks and payment banks should be listed within six years of reaching the required network as prescribed in the licensing guidelines or 10 years of commencement of operations, whichever is earlier.

The recommendations also propose to improve the minimum capital requirement for licensing for new banks from 500 crs to 1000 crs for universal banks and from 200 crs to 300 crs for small finance banks.