RBI forms group to review ownership for private banks

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Published: June 13, 2020 5:00 AM

The development gains significance in light of the year-long legal battle which ended in January this year, with the RBI allowing Uday Kotak, the promoter of Kotak Mahindra Bank, to bring his stake down to 26% by August 2020 while capping his voting rights at 15%.

The committee will also be tasked with suggesting appropriate norms, keeping in mind the issue of excessive concentration of ownership and control, and having regard to international practices as well as domestic requirements. The committee will also be tasked with suggesting appropriate norms, keeping in mind the issue of excessive concentration of ownership and control, and having regard to international practices as well as domestic requirements.

The Reserve Bank of India has constituted an internal working group to review ownership guidelines and corporate structure for private banks.

The central bank on Friday released the terms of reference for a new committee to review the extant guidelines governing ownership and corporate structure for private banks. The working group will take into account key developments over the years, which have a bearing on the issue of ownership. The review would provide an opportunity to harmonise norms applicable to banks set up at different time periods, irrespective of the date of commencement of business, said the central bank.

One of the key terms in the central bank’s statement is “to 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 also be tasked with suggesting appropriate norms, keeping in mind the issue of excessive concentration of ownership and control, and having regard to international practices as well as domestic requirements. It will consist of five members, all working with the RBI — directors of the central board Prasanna Kumar Mohanty and Sachin Chaturvedi, executive directors Lily Vadera and SC Murmu, and chief general manager Shrimohan Yadav.

Shriram Subramanian, managing director (MD), InGovern Research Services, is of the view that given the Kotak Mahindra Bank and Bandhan Bank cases, it was timely for RBI to review its guidelines. He told FE, “Given that the bank ownership norms have been subject to scrutiny by courts, it is time to review bank ownership and shareholding guidelines in its entirety. However, they should have constituted a larger committee including external members and invite public comments for its recommendations.”

The development gains significance in light of the year-long legal battle which ended in January this year, with the RBI allowing Uday Kotak, the promoter of Kotak Mahindra Bank, to bring his stake down to 26% by August 2020 while capping his voting rights at 15%.

As per the existing shareholding norms, a private bank’s promoter must bring down his stake in it to 40% within three years of its launch. Thereafter, the promoter stake must be further reduced to 20% within 10 years and to 15% within 15 years.

The bank has also been asked to cap promoters’ voting rights at 15% of the paid-up equity share capital (PUVESC) from April 1, 2020. The promoter has been barred from buying any further ‘paid up voting equity shares’ till their shareholding falls to 15% of PUVESC. Earlier,the RBI had asked the lender to trim the promoter shareholding to 20% of paid-up capital by December 31, 2018, and 15% by March 31, 2020.

The other terms of reference for the committee will include examining and reviewing the eligibility criteria for individuals and entities to apply for banking licences and to make recommendations on all related issues. The committee will also study the current regulations on holding of financial subsidiaries through non-operative financial holding company (NOFHC) and suggest the manner of migrating all banks to a uniform regulation in the matter, including providing a transition path.

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