RBI Committee Suggests Allowing Corporates To Take Major Bank Stakes

Andrew Cummings
November 21, 2020

The panel has also suggested that large non-bank lenders with asset sizes of more than ₹50,000 crore, including those owned by corporates, should be considered for conversion into banks, provided they have completed 10 years of operation. The central bank had toyed with the idea in the past but stayed away from allowing any large industrial house to enter banking because of governance concerns and the risk of conflict of interest with the fear being that group firms or associate companies could stand to gain if an entity in the same group sets up a bank. Its terms of reference were: a review of the eligibility criteria for individual entities to apply for a banking license; examination of preferred corporate structure for banks and harmonisation of norms; and review of norms for a long-term shareholding in banks by the promoters and other shareholders.

The internal working group (IWG) had been constituted in June this year to review extant ownership guidelines and corporate structure for Indian private sector banks.

Payment Banks are entities that can accept deposits, offer savings and current bank accounts and also issue debit cards. The panel, while proposing a hike in promoter holding in private banks to 26% also said that the promoters could voluntarily choose to bring down their holding further after the five-year lock in.

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. A committee of the Reserve Bank (Bank) has suggested to change the banking law and offer banking license to the Industrial House.

For Payments Banks intending to convert to a Small Finance Bank, the track record of three years of experience as Payments Bank may be considered as sufficient.

Large NBFCs such as M&M Financial Services, Bajaj Finance, Shriram Transport and Chola Investment and Finance - with assets size of more than ₹50,000 crore - can now consider converting into banks. While banks licensed before 2013 may move to an NOFHC structure at their discretion, once the NOFHC structure attains a tax-neutral status.

It also said the initial paid-up voting equity share capital, net worth required to set up a new SFB, may be increased to Rs 300 crore.

The Reserve Bank of India (RBI) released a press release on Friday.

The Mohanty panel also recommended harmonizing of various licensing guidelines. "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.

The RBI has sought comments of stakeholders and members of the public, to be submitted by January 15. Thereafter it has to be brought down to 30 per cent within 10 years and 15 per cent within 15 years. "The idea is to ensure that there is enough capital for private sector banks in line with the vision of a $5 trillion economy". RBI will examine the comments and suggestions before taking a view in the matter.

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