Mumbai: The Reserve Bank on Thursday issued new guidelines on ownership in private sector banks by bundling shareholding patterns into two broad categories of individuals (natural persons) and legal entities/institutions, but retained the cap on foreign ownership at 74%.
The new norms, which envisage diversified shareholding in private sector banks by a single entity/corporate entity/group of related entities, are aimed at helping them meet the additional capital under the Basel-III regulations and to rationalise the ownership limits, the RBI said.
Bundling the ownership limits for all shareholders into two broad categories of natural persons (individuals) and legal persons (entities/institutions), the RBI has stipulated separate limits for non-financial and financial institutions, which have been divvied into diversified and non-diversified institutions.
“For all existing banks, the permitted promoter/promoter group shareholding will be in line with what has been permitted in the 22 February, 2013 guidelines on licensing of universal banks at 15%," it said. In case any promoter/promoter group is eligible for higher shareholding as per the licensing guidelines, the same will apply and the limits prescribed for all shareholders in the long run will not apply.
“In case of financial institutions that are owned to the extent of 50% or more or controlled by individuals, the shareholding would be deemed to be by a natural person and the shareholding will be capped at 10%," RBI said.
Under the new norms, the RBI has retained the provision of seeking its prior mandate if someone wants to increase shareholding/voting rights to 5% or more. Similarly, it said the ‘fit and proper’ criterion for acquisition of shareholding in a private bank beyond 5% will continue to apply.
Acquisition of shareholding in a private sector bank by foreign entities will continue to be subject to the extant FDI policy, and the aggregate foreign ownership through FDI, FII/NRIs cannot exceed 74% of paid-up capital.
“At all times, at least 26% of the paid-up share capital of the private sector banks will have to be held by resident Indians," it said. Banks, including foreign ones having branch presence here, can continue to acquire stake in a bank’s equity shares up to 10% of the investee bank’s equity capital.
But in case of exceptional circumstances, such as restructuring of problem/weak banks or in the interest of consolidation in the banking sector, the Reserve Bank may permit them a higher level of shareholding.
In those banks where there are no major regulatory/ supervisory concerns, a person may be permitted to acquire higher shareholding, if the same is supported by the board. In such banks, hostile takeover will not be allowed.
In banks where there are regulatory/supervisory concerns and, if the Reserve Bank feels that there is a need for a change in the ownership/management of the bank in the interests of the depositors of the bank, the Reserve Bank may permit a person to acquire higher shareholding, even if the existing board does not support the same. Such a person may or may not be an existing shareholder.