RBI to review rules on ownership structure of private banks

The Reserve Bank of India (RBI) has constituted an internal working group to review the rules on ownership and corporate structure for private sector banks.

The internal working group will examine and review the extant licensing and regulatory guidelines relating to ownership and control, promoters’ holding, requirement of dilution, control and voting rights, etc, the RBI said.

The working group comprises Prasanna Kumar Mohanty, Director, Central Board of RBI, Sachin Chaturvedi, Director Central Board of RBI, Lily Vadera, Executive Director, RBI, SC Murmu, Executive Director, RBI, Shrimohan Yadav, Chief General Manager, RBI, the central bank said in a release on June 12.

"As macroeconomic, financial market and technological developments continue to influence the future of banking and transform how the entire banking industry operates, it is felt necessary to align regulations to meet the requirements of a dynamic banking landscape," the RBI said.

The committee will look at the licensing guidelines and regulations relating to ownership and control in Indian private sector banks and suggest appropriate norms, review the eligibility criteria for individuals/ entities to apply for banking license and make recommendations on all related issues among other things.

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It will also examine and review the norms for promoter shareholding at the initial/licensing stage and subsequently, along with the timelines for dilution of the shareholding. The Committee will submit its report by 30th September 2020, the central bank said.

RBI's rules on promoter holding in private banks have changed from time to time. IndusInd Bank secured a banking licence in 1994 and Kotak Mahindra Bank got one a decade later. The new bank licensing norms in 1993 didn’t specify rules on promoter holding separately. Promoters must have a minimum paid-up capital of 40 percent and this will be locked in for a period of five years, according to the rules issued that year.

In 2013, when the RBI issued another round of private bank licensing guidelines, the regulator stipulated a Non-Operative Financial Holding Company (NOFHC) model. The RBI said a NOFHC shall initially hold a minimum of 40 percent of the paid-up voting equity capital of a bank which shall be locked in for five years and  brought down to 15 percent within 12 years. This was when Bandhan and IDFC Bank got licenses.

The rules were changed three years later. In August 2016, when fresh guidelines on universal on-tap licensing were issued, RBI insisted that promoter shareholding had to be cut down to 40 percent within five years of operations, 30 percent within 10 years and 15 percent within 15 years of receiving the licence.