RBI tweaks ownership norms for private banks

The Reserve Bank of India has tweaked extant guidelines on ownership and shareholding structure for private sector banks."The guidelines have been reviewed against the background of the guidelines on licensing of new banks in the private sector issued in February 2013, the need for additional capital for the banks consequent to the implementation of Basel III capital regulations and to rationalise the ownership limits," the Reserve Bank said in a release.Ownership limits for all shareholders in the long run are now stipulated under two broad categories: (i) natural persons (individuals) and (ii) legal persons (entities/institutions). Further, separate limits are now stipulated for (i) non-financial and (ii) financial institutions; and among financial institutions, for diversified and non-diversified financial institutions.As per the new guidelines, the new ownership structure is as below:Examples of the various categorizations include individuals as "legal persons", non-financial institutions could mean corporates such as Infosys or Reliance, non-regulated or non-diversified and non-listed banks could mean small banks such as Ratnakar Bank or Syrian Catholic Bank. Regulated, well diversified and listed/supranational/PSU could be mean HDFC Bank, LIC or even IFC.The one big change that the Reserve Bank has brought in is allowing "banks, including foreign banks" to hold 10 percent. This limit earlier stood at 5 percent.The other change is that promoter-owned groups (such as Kotak Mahindra Bank or Yes Bank) can own up to 15 percent, from an earlier limit of 10 percent.However, detailed revisions in the foreign bank ownership guidelines are likely to come separately. Below is the verbatim transcript of Parag Jariwala's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Latha: I want to ask you about tweaking of rules of private bank ownership. Now private entities, banks as well can own up to 10 percent in some of the private banks and then there are others, the promoter shareholding can remain at 15 percent. The net-net of these rules, do you think today there Lakshmi Vilas Bank (LVB) and Karnataka Bank and Federal Bank and all should rejoice?

A: Possible because once the universal banking guidelines were there, there the limit for promoter holding had gone up to 15 percent. However, we all were expecting that this will get revised and finally it has happened. There are some interesting changes done by Reserve Bank of India (RBI) that individual can now own up to 10 percent also any diversify entity can own 40 percent. So probably some non banking financial companies (NBFCs) or some large group who wants to own and control a bank, they can do that. So, small banks like Karnataka Bank and all can see a slight bump up today.

Latha: This 40 percent is who. LIC is the only one I could think of and maybe HDFC?

A: You can also think of somebody like Larsen and Toubro (L&T) or L&T Finance Holdings. However, we need to see minute details etc but those entities are not completely rollout and since long L&T Finance Holdings looking for some bank and want to foray into banking operations.