RBI Committee Suggests Allowing Corporates To Take Major Bank Stakes

RBI panel recommends raising promoters cap to 26% in private banks

First relates to allowing large corporates and industrial houses as promoters of banks after necessary amendments to the Banking Regulation Act, 1949.

NBFCs, also called as shadow banks, are akin to normal banks, but they can not accept demand deposits and do not form part of the payment and settlement system and can not issue cheques drawn on itself.

"This stipulation should be uniform for all types of promoters and would mean that promoters, who have already diluted their holdings to below 26 per cent, will be permitted to raise it to 26 per cent of the paid-up voting equity share capital of the bank", it said. The central bank released the groups' report on Friday. While added that they should be mandatory only in cases where the individual promoters or promoting entities or converting entities have other group entities. IWG said that a track record of three years of experience as payments banks may be considered sufficient.

The RBI committee has also recommended that after 15 years, promoters should be allowed to hold up to 26%, instead of the current cap of 15%, a move that will help the promoters exploit the upside in a bank. This included relaxation in NPA (non-performing assets) classification and funding through the Small Industries Development Bank of India (SIDBI), National Bank for Agriculture and Rural Development (NABARD) and the National Housing Bank (NHB), among other measures. The central bank had toyed with the idea in the past but stayed away from allowing any large industrial house to enter banking because of governance concerns and the risk of conflict of interest with the fear being that group firms or associate companies could stand to gain if an entity in the same group sets up a bank.

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It suggested increasing the initial paid-up capital or net worth required to set up a new universal bank to ₹1,000 crore; for SFBs to ₹300 crore and for urban cooperative bank transiting to SFBs, it is ₹300 crore in five years. "While banks licensed before 2013 may move to an 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", the Internal Working Group has noted. Comments on the report may be submitted by January 15, 2021, through email.

In 2013-14, the RBI invited applications for new private banks.

"Where corporate house is a promoter, strict regulations on the use of funds held with the bank and monitoring of related party transactions will be essential". Whenever new licensing guidelines are issued, if new rules are more relaxed, benefit should be given to existing banks, the report mentioned.

IWG suggested doubling the minimum initial capital requirement for licensing new banks from Rs 500 crore to Rs 1,000 crore for universal banks and raising it from Rs 200 crore to Rs 300 crore for small finance banks. For large companies to float banks, the law has to be changed which could take longer, they said.

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