NRI Dunia
Think Outside The Box

RBI panel proposes to allow large corporate houses as promoters of banks

A RBI panel has suggested more liberal entry norms for setting up private banks but with higher minimum capital requirement and promoters’ stake. Some of the proposals have been made earlier but the difference is in the Government’s drive this time for structural changes in the economy, said analysts.

The report was submitted by an internal working group set up by the RBI five months ago to review the ownership guidelines and corporate structure for Indian private sector banks.

The working group has made three major recommendations. It has suggested that the ceiling on promoter shareholding in private banks be raised from the current level of 15 per cent to 26 per cent of the paid-up voting equity share capital of the bank.

It has also suggested that well-run large NBFCs, with an asset size of Rs 50,000 crore and above, may be considered for conversion into banks.

The panel also wanted large corporates to be allowed as private bank promoters.

The industry had welcomed the recommendations relating to NBFCs and large corporates, stating that this had been its demand for a long time. FICCI President Sangita Reddy said with a strong supervisory mechanism, one can ensure maintaining an arm’s length distance from connected parties and avoid any conflict of interest.

In another salient recommendation, the RBI panel recommended the conversion of payments banks into small finance banks (SFBs) after three years of being in business.

Conversion safeguards

The RBI panel said corporates should be allowed to set up banks only after amending the Banking Regulation Act to prevent connected lending and exposures. There should also be strengthening of the supervisory mechanism for large conglomerates, including consolidated supervision.

The conversion of NBFCs will take place only after they have completed 10 years of operations and met due diligence criteria and compliance with some additional conditions.

Payments Banks need to have a three-year track record for conversion into a small finance bank (SFB). Also, they must be listed after a prescribed time period after attaining a certain net worth.

The panel wanted the minimum initial capital requirement for licensing new banks to be doubled from Rs 500 crore to Rs. 1,000 crore for universal banks, and from Rs. 200 crore to Rs. 300 crore for SFBs.