'RBI may need to rethink promoter holdings order'

Written by Vishwanath Nair | Pranav Nambiar | Mumbai | Updated: Feb 27 2013, 07:12am hrs
Reserve Bank of Indias directives to reduce promoter shareholding in new private sector banks to 15% within 12 years of setting up, may need a rethink sooner or later, according to Rana Kapoor, the managing director and chief executive officer of YES Bank.

I personally believe the floor should be minimum at 20%, it could be even 26%, Kapoor told FE in an interview. When promoters have meaningful skin in the game, they tend to be more prudent and cautious, he said. Promoter shareholding also acts as a safety net for banks and creates comfort for external stakeholders.

Experts say RBI move to reduce promoter shareholding is to instill some sort of independence in the boards of new banks to avoid any malpractices.

"Independence without skin in the game is a risk factor. We must have ownership stakes, which are not necessarily with short term ownership benefits like bonuses or immediate compensation. But which have long term skin in the game, like equity ownership," Kapoor said.

YES Bank's promoter shareholding stood at 25.80% as on December 31. Since the bank was set up in 2004, it will have to reduce its promoter shareholding to 20% by 2014 and to 15% by 2016, as per the latest guidelines.

"Whatever future regulations, post-licences have come in, we have to respect and comply with them. I believe the 15%-shareholding pattern in our case will be most compliant," Kapoor said. Though he also wants these rules to apply on public sector banks, since it then creates a level playing field.

"Especially when they are having a constraint on capital raising and when there is a scarcity of fiscal resources. They (the government) can still, through a financial holding company, be in control over the board if they are that possessive," he said.

RBI, in final guidelines for new bank licences, has clarified that the promoter of a new bank must float a non-operative financial holding company (NOFHC) that would hold 40% of the paid-up capital of the bank for an initial period of five years.

The NOFHC will then have to reduce its stake to 15% in 12 years from the date of licensing. RBI's guidelines also require that a t least 50% of the directors of NOFHC should be independent directors.

At present, private banks where the promoter stake is more than 15% include Kotak Mahindra Bank, YES Bank, IndusInd Bank and DCB Bank. Kotak Mahindra Bank has already been asked to reduce its promoter shareholding to 20% from the current 45%, by March 31, 2018.