RBI's internal working group moots raising promoter stake in banks

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The IWG had to evaluate the extant ownership guidelines and corporate structure for Indian private sector banks.

The 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 conglomerates, including consolidated supervision. For players such as Equitas and Ujjivan Small Finance Bank, this could help bring in more value for investors and remove the need for double listing of the holding company and the bank.

"As regards non-promoter shareholding, a uniform cap of 15 per cent of the paid-up voting equity share capital of the bank may be prescribed for all types of shareholders", the RBI's Internal Working Group recommended. The central bank released the groups' report on Friday. It has suggested that for Payments Banks, such as the one operated by Indian fintech unicorn Paytm, intending to convert into Small Finance Banks (SFBs), their track record of three years of experience as a Payments Bank may be considered as sufficient.

It recommended increasing the size of the stake that promoters in private banks can hold to 26% from the current 15% over a 15-year time frame.

The move has a direct implication on promoter holding of Kotak Mahindra Bank and IndusInd Bank, where promoter holding has been a contentious issue. The central bank had toyed with the idea in the past but stayed away from allowing any large industrial house to enter banking because of governance concerns and the risk of conflict of interest with the fear being that group firms or associate companies could stand to gain if an entity in the same group sets up a bank. RBI has sought comments on the draft report by 15 January. Banks licensed before 2013 may move to a NOFHC structure at their discretion, once the NOFHC structure attains a tax-neutral status.

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In 2013-14, the RBI invited applications for new private banks. The 2014 SFB licensing conditions had barred large corporate/industrial houses from promoting banks.

The same year, RBI also granted licenses to 10 entities to start a small finance bank, which can offer basic banking services including accepting deposits and lending. Whenever new licensing guidelines are issued, if new rules are more relaxed, benefit should be given to existing banks, the report mentioned.

The IWG suggested that initial paid-up voting equity share capital required to set up a new small finance bank, may be increased to Rs 300 crore (it is now Rs 200 crore), while the same for universal banks be raised to Rs 1,000 crore (from Rs 500 crore). RBI will examine the comments and suggestions before taking a view in the matter.

For urban cooperative banks looking to transition to a small finance bank, The initial paid-up voting equity share capital/ net worth should be Rs 150 crore, which has to be increased to Rs 300 crore in five years, it further added.

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