The Reserve Bank of India (RBI) on Friday said it has constituted an internal working group to review the existing guidelines on ownership and corporate structure of private sector banks. The group will be headed by RBI executive director P.K. Mohanty.
“Though the overarching principles that the ownership and control of private sector banks should be well diversified and that the major shareholders are ‘fit and proper’ have remained unchanged, the specific contours have evolved over the years with specific prescriptions being given as part of licensing guidelines issued at various points in the past. It is, therefore, felt necessary to comprehensively review the extant guidelines on ownership, governance and corporate structure in private sector banks, taking into account key developments which have a bearing on the issue," RBI said.
The group will examine the existing licensing guidelines and regulations on ownership and control of private sector banks. It will also suggest appropriate norms, keeping in mind the issue of excessive concentration of ownership and control. Besides, it will examine and review the eligibility criteria for individuals or entities to apply for a banking licence, and review the promoter shareholding norms at the initial licensing stage.
It will also study the current regulations on holding of financial subsidiaries through a non-operative financial holding company (NOFHC) and suggest steps to migrate all banks to a uniform regulation.
The need to examine the current guidelines on ownership comes after large shareholders of private sector banks sought RBI’s permission to raise their stakes beyond the permitted 15%. Top on the list were the Hindujas, promoters of IndusInd Bank, who wanted to increase their stakes in the bank.
The Hindujas’ move followed the RBI’s decision to allow Uday Kotak to bring down his stake to 26% by August, and further reduce his stake over a period of time. Kotak had a prolonged disagreement with RBI over his personal holding in the private lender.
He had even moved the Bombay high court in December 2018 against an RBI diktat on promoter holdings in banks.
The bank licensing rules mandated that a private bank’s promoter will need to pare holding to 40% within three years, 20% in 10 years and to 15% in 15 years. The rules on promoter holding have changed over the years.