RBI panel proposes to raise promoters cap to 26% in private banks

Source The Indian Express

The panel's recommendations may also pave the way for shadow banks to convert into lenders. Some other industrial houses like Bazar and Larsen & Toubro are also applying for banking license this time, who had shown interest for banking license in 2013.

An internal working group of the Reserve Bank of India (RBI) has proposed the entry of corporate houses into banking and higher promoter stakes in the long run.

In 2018, billionaire banker Uday Kotak, managing director of Kotak Mahindra Bank, took the central bank to the court over an order from the regulator to reduce his stake in the lender to 15%.

As on March 31, 2020, the asset size of India's NBFC sector, including housing finance companies, stood at 688 billion US dollars.

As regards non-promoter shareholding, it has suggested a uniform cap of 15% of the paid-up voting equity share capital of the bank for all types of shareholders.

"Large corporate/industrial houses may be allowed as promoters of banks only after necessary amendments to the Banking Regulation Act, 1949", the committee suggested. For non-promoter shareholding, the current long-run shareholding guidelines may be replaced by a simple cap of 15% of the paid-up voting equity share capital of the bank, the committee said.

It has said that for existing small finance banks and payments banks, listing should be done "within six years from the date of reaching net worth of Rs 500 crore" or "ten years from the date of commencement of operations", whichever is earlier.

As many as 14 licenses for universal banks have been issued in the private sector since 1993, out of which just 10 are operational. While added that they should be mandatory only in cases where the individual promoters or promoting entities or converting entities have other group entities. But once the NOFHC structure achieves a tax-neutral status, all those banks shall move to the NOFHC structure within five years from the tax-neutrality announcement.

The IWG suggested that initial paid-up voting equity share capital required to set up a new small finance bank, may be increased to Rs 300 crore (it is now Rs 200 crore), while the same for universal banks be raised to Rs 1,000 crore (from Rs 500 crore). "If new rules are tougher, legacy banks should also confirm to new tighter regulations, but transition path may be finalized in consultation with affected banks", the report said. Comments on the report may be submitted by January 15, 2021, through email.

The report noted that the contribution of private sector banks towards deposits and advances of Scheduled Commercial Banks has increased from 12.63 per cent and 12.56 per cent in 2000 to 30.35 per cent and 36.04 per cent, respectively, in 2020. "The idea is to ensure that there is enough capital for private sector banks in line with the vision of a $5 trillion economy".

IWG suggested doubling the minimum initial capital requirement for licensing new banks from Rs 500 crore to Rs 1,000 crore for universal banks and raising it from Rs 200 crore to Rs 300 crore for small finance banks.



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