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

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

The committee has suggested that industrial houses whose NBFCs have assets of more than Rs 50 thousand crore should be converted into banks. The working group's proposal if accepted can do away with the need to have a holding company when there is only one business (small finance bank) under it. However, when Tata Sons came to know that the guidelines of the Reserve Bank of India were too strict, which could harm other businesses of the Tata Group, it withdrew the banking application.

The IWG, set up in June, has also suggested that large corporate or industrial houses be allowed as promoters of banks only after necessary amendments to the Banking Regulation Act, 1949 (to prevent connected lending and exposures between the banks and other financial and non-financial group entities); and strengthening of the supervisory mechanism for large conglomerates, including consolidated supervision.

India's banking sector could be in for an overhaul if the RBI implements a report authored by its internal working group on private bank ownership. These parallel banking companies are incorporate under companies act and not under banking act.

The panel has also suggested that well run NBFCs can be considered for conversion into banks if they have operated for 10 years and meet due diligence criteria.

In another update, the panel also suggested raising the cap on the stake of private bank promoters to 26 per cent from the current 15 per cent in the long run (15 years).

Previously, when RBI did issue private bank licenses, the banking regulator allowed corporate houses to apply.

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"This gives ample flexibility and time for promoters to bring down their holding to 26 per cent over the 10-year period", opines PN Vasudevan, MD and CEO, Equitas Small Finance Bank.

The RBI has sought comments of stakeholders and members of the public, to be submitted by January 15. 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 proposal also clearly states that the RBI must take steps to ensure harmonization and uniformity in different licensing guidelines, to the extent possible.

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). However, they may be permitted to make total investments in a financial or non-financial services company, which is not a subsidiary or joint venture or associate up to 20% of the bank's paid-up share capital and reserves.

For urban cooperative banks looking to transition to a small finance bank, The initial paid-up voting equity share capital/ net worth should be Rs 150 crore, which has to be increased to Rs 300 crore in five years, it further added. RBI will examine the comments and suggestions before taking a view in the matter.

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