'Bold and timely': Ashok Hinduja on RBI panel's proposal for Indian pvt banks3 min read . Updated: 22 Nov 2020, 05:18 PM IST
- 'Like in many other fields, India should move to a One Nation, One Banking Regulatory Framework to become a $5 trillion economy,' says Chairman of the Hinduja Group of Companies (India)
- RBI panel proposes to raise cap on promoters' stake in pvt banks from 15% to 26% in 15 years
The Chairman of the Hinduja Group of Companies (India), Ashok Hinduja, on Sunday has welcomed the Reserve Bank of India's Internal Working Group’s report on the review of extant ownership guidelines and corporate structure for Indian private sector banks.
"The Working Group has taken a timely and bold stand by proposing a uniform regulatory framework for the entire banking system, dispensing with the regulatory arbitrage available between banks, NBFCs, small finance banks and payment banks. Like in many other fields, we should move to a One Nation, One Banking Regulatory Framework if we are to move towards realising our aspiration to be a $5 trillion economy. Solid banking apparatus is a must." said Hinduja in an official statement.
“The Report rightfully puts a greater onus to on the promoter-shareholders to exercise oversight through a higher shareholding limit of 26%, with commensurate voting rights. It helps strengthen the institutional framework by ensuring the promoter responsibility with more skin in the game, Supervisory stance for large conglomerates, including consolidated supervision will ensure the necessary check and balance in the system," Hinduja further said.
“Ring fencing the banking sector from a myriad of emerging risks has to be a constant endeavour, and I am certain the Reserve Bank of India will exercise a continuous vigil as it has done in the past. We hope the RBI will be able to implement these guidelines within a specific time frame. With the past policy interventions and this forward looking guidelines, undoubtedly the year 2020 belongs to RBI," he said while striking a note of caution,
An internal RBI panel has proposed that large corporates may be permitted to promote banks after necessary amendments to the Banking Regulations Act, as well as raising the cap on promoters' stake in private sector banks to 26 per cent.
The panel also suggested the conversion of big non-banking finance companies (NBFCs) into banks.
The Reserve Bank of India had constituted an Internal Working Group (IWG) on June 12, 2020, to review extant ownership guidelines and corporate structure for Indian private sector banks. The central bank made the report public on Friday and has sought comments by January 15, 2021 "before taking a view in the matter".
The group has recommended that "large corporate/industrial houses may be permitted to promote 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".
It also made a case for the strengthening of the supervisory mechanism for large conglomerates, including consolidated supervision.
The approach of the RBI regarding ownership of banks by large corporate /industrial houses has, by and large, been a cautious one in view of serious risks, governance concerns and conflicts of interest that could arise when banks are owned and controlled by them.
The panel also suggested well run large non-banking finance companies (NBFCs) with an asset size of ₹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.
It recommended the minimum initial capital requirement for licensing new banks should be enhanced from ₹500 crore to ₹1,000 crore for universal banks and from ₹200 crore to ₹300 crore for small finance banks.
The PSBs have been consistently losing market share to the private banks, a process which has markedly hastened over the past five years. The primary reason for this has been the beleaguered balance sheets of PSBs on account of the non-performing asset (NPA) overhang of post-global financial crisis years.
Capital has not been a problem for private banks. During the last five years, private banks have been able to raise an aggregate capital of ₹1,15,328 crore from the market as compared to ₹70,823 by PSBs, which needed a massive infusion of another ₹3,18,997 crore from the government.