RBI panel proposes to raise promoters cap to 26% in private 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

An internal working group set up by the RBI has proposed to raise the cap on promoters’ stake in private banks from the current 15 % to 26 % in 15 years.

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.

The Reserve Bank of India had constituted the internal working group (IWG) on June 12, 2020, to review extant ownership guidelines and corporate structure for Indian private sector banks. The central bank released the groups’ report on Friday.

The terms of reference of the IWG inter alia included a review of the eligibility criteria for individuals/entities to apply for banking license; examination of preferred corporate structure for banks and harmonisation of norms in this regard; and review of norms for long-term shareholding in banks by the promoters and other shareholders.

On eligibility of promoters, it said large corporate/industrial houses may be allowed as promoters of 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 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.

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