RBI releases panel report on ownership, governance norms of private banks

‘Raise private bank promoter cap to 26%’

RBI Working Group Suggests Converting NBFCs Into Banks, Other Sweeping Changes

First relates to allowing large corporates and industrial houses as promoters of banks after necessary amendments to the Banking Regulation Act, 1949. 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. NBFCs don't accept demand deposits; they do not form part of the payment and settlement system and can't issue cheques drawn on itself; deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks. The panel, while proposing a hike in promoter holding in private banks to 26% also said that the promoters could voluntarily choose to bring down their holding further after the five-year lock in.

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. The 2014 SFB licensing conditions had barred large corporate/industrial houses from promoting banks.

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An internal working group (IWG) constituted by the Reserve Bank of India (RBI), on Friday, recommended that non-banking financial companies (NBFCs) with an asset size of INR 50,000 Cr and above, may be considered for conversion into banks, subject to 10 years of completion of operations.

In an interview with Subhomoy Bhattacharjee, Chaturvedi, who is also a member of the central board of governors of the RBI, talks about the reasoning behind the guidelines. IWG said that a track record of three years of experience as payments banks may be considered sufficient. RBI has sought comments on the draft report by 15 January.

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"While banks licensed before 2013 may move to a NOFHC structure at their discretion, once the NOFHC structure attains a tax-neutral status, all banks licensed before 2013 shall move to the NOFHC structure within 5 years from announcement of tax-neutrality", it said. "Whenever new licensing guidelines are issued, if new rules are more relaxed, the benefit should be given to existing banks, and if new rules are tougher, legacy banks should also conform to new tighter regulations, but a non-disruptive transition path may be provided to affected banks", the statement concluded. After setting up the business and running it for years and pumping in funds, promoters have often felt short-changed with the 15 per cent cap, which does not give them a substantial representation in the entity, let alone a controlling stake.

Some of its other recommendations include doubling the minimum initial capital requirement for new universal banks to Rs 1,000 crore and small finance banks to Rs 300 crore from Rs 200 crore. And for urban cooperative banks transiting to SFBs, the initial paid-up capital or net worth should be Rs 150 crore which has to be increased to Rs 300 crore in five years. RBI will examine the comments and suggestions before taking a view in the matter.

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