RBI report on ownership structure of private banks: An internal working group set up by the Reserve Bank of India has proposed to raise the ceiling on promoters’ stake in private banks from the current 15 per cent to 26 per cent in 15 years.
The expert group has also recommended that large corporate or industrial houses may be allowed as promoters of banks only after amendments to the Banking Regulation Act and strengthening of the supervisory mechanism for large business houses, including a consolidated supervision system.
The Reserve Bank of India had constituted the internal working group (IWG) on June 12, 2020, to review extant ownership guidelines and corporate structure for Indian private sector banks. The central bank released the groups’ report on Friday.
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The terms of reference of the expert group included a review of the eligibility criteria for individuals, entities to apply for banking license; examination of preferred corporate structure for banks and harmonisation of norms in this regard; and review of norms for long-term shareholding in banks by the promoters and other shareholders.
On eligibility of promoters, the group said large corporate, industrial houses may be allowed as promoters of banks only after necessary amendments to the Banking Regulations Act, 1949 to deal with connected lending and exposures between the banks and other financial and non-financial group entities.
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The expert group also made a case for the strengthening of the supervisory mechanism for large conglomerates, including consolidated supervision.
The panel also suggested well run large non-banking finance companies (NBFCs) with an asset size of Rs 50,000 crore and above, including those owned by a corporate house, may be considered for conversion into banks, subject to completion of 10 years of operations.
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The expert group also recommended the minimum initial capital requirement for giving new banks licences should be raised to Rs 1,000 crore from Rs 500 crore for universal banks. The IWG recommended that for small finance banks, the limit should be raised to Rs 300 crores from Rs 200 crore.