RBI panel recommends raising promoters cap to 26% in private banks

Daniel Fowler
November 21, 2020

The panel also recommended that for Payments Banks intending to convert to a Small Finance Bank (SFB), their track record of three years should be considered sufficient and Small Finance Banks and Payments Banks may be listed within "6 years from the date of reaching net worth equivalent to prevalent entry capital requirement prescribed for universal banks" or "10 years from the date of commencement of operations", whichever is earlier. 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. Some other industrial houses like Bazar and Larsen & Toubro are also applying for banking license this time, who had shown interest for banking license in 2013.

"We welcome the report of the RBI's internal working group on the ownership guidelines and corporate structure for Indian private sector banks".

The universe of India's NBFCs including 9,601 companies of which top 50 account for 80 percent of the market share of loans. The report is placed on the RBI website for comments and suggestions of stakeholders and public.

As on March 31, 2020, the asset size of India's NBFC sector, including housing finance companies, stood at 688 billion US dollars.

Separately, the cap on promoters' stake in a bank in long run of 15 years may be raised to 26 per cent of the paid-up voting equity share capital of the bank from the current levels of 15 per cent, it further suggested.

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India's Central Bank has suggested large non-banking financial companies (NBFCs) including corporates with asset size above 6.7 billion USA dollars to convert into banks subject to certain conditions in a discussion paper released on Friday.

The panel has also said the voting rights of any single non-promoter be limited to 15 per cent of the voting equity capital. The committee said that for this, 3 years of experience as a payment bank should be understood.

The central bank should also continue with the present structure of a non-operative financial holding company (NOFHC) for all new licences issued to universal banks.

The Working Group has also suggested doubling the minimum initial capital requirement for licensing new banks from Rs.500 Cr to Rs.1000 Cr for universal banks and raising it from Rs 200 Cr to Rs 300 Cr for small finance banks. In the past several of the large corporate houses in India had applied for banking license but had either backed out or were denied by RBI. However, when Tata Sons came to know that the guidelines of the Reserve Bank of India were too strict, which could harm other businesses of the Tata Group, it withdrew the banking application. But once the NOFHC structure achieves a tax-neutral status, all those banks shall move to the NOFHC structure within five years from the tax-neutrality announcement. Whenever new licensing guidelines are issued, if new rules are more relaxed, benefit should be given to existing banks, the report mentioned. "The idea is to ensure that there is enough capital for private sector banks in line with the vision of a $5 trillion economy". RBI will take a decision after reviewing them.

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