The Reserve Bank of India (RBI) on November 26 said it has accepted 21 out of the 33 recommendations submitted by a central bank working group on ownership and corporate structure for Indian private sector banks.
Among the recommendations accepted is a rule that says the cap on promoters’ stake in the long run of 15 years may be raised from the current levels of 15 percent to 26 percent of the paid-up voting equity share capital of the bank.
This stipulation should be uniform for all types of promoters and would not mean that promoters, who have already diluted their holdings to below 26 percent, will not be permitted to raise it to 26 percent of the paid-up voting equity share capital of the bank, the RBI said.
"The promoter, if he/she so desires, can choose to bring down holding to even below 26 percent, any time after the lock-in period of five years," the RBI said.
The central bank on November 20 had released the report on the internal working group (IWG) recommendations on private bank ownership and corporate structure.
Also, the RBI accepted the proposal that there is no need to fix any cap on the promoters’ holding in initial five years.
Other accepted recommendations:
While there is no intermediate sub-targets between 5-15 years is required for the promoter to bring down the stake, at the time of issue of licences, the promoters needs to submit a dilution schedule which may be examined and approved by the Reserve Bank.
The progress in achieving these agreed milestones must be periodically reported by the banks and shall be monitored by the Reserve Bank, the RBI said.
As regards non-promoter shareholding, current long-run shareholding guidelines may be replaced by a simple cap of 15 per cent of the paidup voting equity share capital of the bank for all types of non-promoter shareholders, the RBI said.
The IWG is of the view that pledge of shares by promoters during the lock-in period, which amounts to bringing the unencumbered promoters’ shares below the prescribed minimum threshold, should be disallowed, the RBI said.
Further, the Reserve Bank may also introduce a reporting mechanism for pledging of shares by promoters of private sector banks, the RBI said.
Also, banks currently under NOFHC (non-operative financial holding company) structure may be allowed to exit from such a structure if they do not have other group entities in their fold, the RBI said.
The central bank said NOFHCs should continue to be the preferred structure for all new licenses to be issued for Universal Banks. However, NOFHC may be mandatory only in cases where the individual promoters / promoting entities / converting entities have other group entities, the RBI said.
As part of the framework for scale-based regulation of NBFCs, the Reserve Bank may consider putting in place a tighter, bank-like regulatory framework for large NBFCs, the RBI said.
RBI further said it has accepted the working group recommendation that the minimum requirement on track record of experience of promoting entity, including for a converting NBFC, may continue at 10 years for Universal Banks and 5 years for Small finance banks.
However, for a Payments Bank (PB) intending to convert into an SFB, track record of 3 years of experience as PB may be sufficient, the RBI said.