Home >Industry >Banking >RBI panel suggests raising cap on promoter stake in private banks
The committee also suggested capping of bank’s investment in any new or existing entity to 20% (AP)
The committee also suggested capping of bank’s investment in any new or existing entity to 20% (AP)

RBI panel suggests raising cap on promoter stake in private banks

  • The committee also recommended giving banking licences to large corporates or industrial houses after necessary amendments to the Banking Regulation Act

MUMBAI: A Reserve Bank of India committee on Friday recommended raising the cap on promoter stake in private sector banks to 26% of the paid up equity after 15 years of operation.

Currently, banking regulations make it mandatory for promoters of private sector banks to reduce their ownership to 40% within three years and to 15% in 15 years.

The committee also recommended giving banking licences to large corporates or industrial houses after necessary amendments to the Banking Regulation Act, 1949 and strengthening of the supervisory mechanism for large conglomerates.

The panel, headed by RBI executive director PK Mohanty, was set up in June to review extant ownership guidelines and corporate structure for Indian private sector banks. RBI has sought comments on the draft report put up for comments by 15 January.

On ownership issue, the committee recommended bringing down the promoter holding to below 26% anytime after the first five years of lock-in. For non-promoter shareholding, the current long-run shareholding guidelines may be replaced by a simple cap of 15% of the paid-up voting equity share capital of the bank, the committee said.

According to the committee, large non-banking finance companies with asset size of more than 50,000 crore including those owned by corporate houses should be considered for conversion into banks, provided they have completed 10 years of operation. Payments Banks on the other hand could look at converting to a small finance bank after a track record of three years of experience.

The Mohanty committee also suggested that Non-operative Financial Holding Company (NOFHC) structure should continue as the preferred structure for all new banking licences. Banks currently under NOFHC structure may be allowed to exit from such a structure if they do not have other group entities in their fold. While banks licensed before 2013 may move to an NOFHC structure at their discretion, once the NOFHC structure attains a tax-neutral status. These banks should then move to the NOFHC structure within 5 years from announcement of tax-neutrality, the committee said.

The committee also suggested capping of bank’s investment in any new or existing entity to 20%. However, they may be permitted to make total investments in financial or non-financial services company which is not a subsidiary or JV or associate upto 20 per cent of the bank’s paid up share capital and reserves.

The Mohanty committee also recommended harmonising various licensing guidelines which lead to various interpretational issues and thereby create confusion among banking players.

“Whenever a new licensing guideline is issued, if new rules are more relaxed, benefit should be given to existing banks, immediately. If new rules are tougher, legacy banks should also confirm to new tighter regulations, but transition path may be finalised in consultation with affected banks to ensure compliance with new norms in a non-disruptive manner," the report said.

The committee also suggested increasing the initial paid-up capital or net worth required to set up a new universal bank to 1000 crore, for small finance banks to 300 crore and for urban cooperative bank transiting to SFBs, the initial capital has been fixed at 300 crore in five years.

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