RBI tweaks shareholding norms for private banks
13 May 2016
The Reserve Bank of India (RBI) has tweaked the guidelines on ownership in private sector banks by bundling shareholding patterns into two broad categories - individuals (natural persons) and legal entities / institutions even as it retained the 74 per cent cap on foreign ownership.
The guidelines have been reviewed to rationalise ownership limits in the backdrop of the guidelines on licensing of new banks in the private sector issued in February 2013 and in view of the need for additional capital for the banks consequent to the implementation of Basel III capital regulations, RBI stated in a notification on Thursday.
It has stipulated the following principles for shareholding by promoters, other entities and individuals in private sector banks after the review.
The new norms are aimed at helping them meet additional capital under Basel-III regulations and to rationalise the ownership limits. The RBI also stipulated separate limits for non-financial and financial institutions, now divvied into diversified and non-diversified institutions.
For all existing banks, the permitted promoter/promoter group shareholding will be in line with what has been permitted in the February 22, 2013 guidelines at 15 per cent. If any promoter is eligible for higher shareholding, the same will apply and the limits prescribed for all shareholders in the long run will not apply.
In case of financial institutions owned up to 50 per cent or more or controlled by individuals, the shareholding would be deemed to be by a natural person and capped at 10 per cent. The RBI has retained the provision of seeking its prior mandate if someone wants to increase shareholding/voting rights to 5 per cent or more.
The RBI also said that entities from Pakistan, China, Bangladesh, Sri Lanka, Afghanistan, Iran and Hong Kong or Macau will require its prior approval to set up branch / office in India.
Sub-category of shareholders include all categories of promoters, promoter groups, natural persons / legal persons, non-financial institutions / entities, financial institutions, non-regulated or non-diversified and non-listed entities, regulated, well diversified and listed / supranational institutions, public sector undertakings, and government (under special circumstances).
For all existing banks, the permitted promoter / promoter group shareholding will be 15 per cent as prescribed in the 22 February 2013 guidelines on licensing of universal banks.
In case any promoter / promoter group is eligible for higher shareholding as per the licensing guidelines, then the same will apply and the limits prescribed for all shareholders in the long run in the matrix will not apply
In case of financial institutions that are owned to the extent of 50 per cent or more or controlled by individuals, the shareholding would be deemed to be by a natural person and the shareholding will be capped at 10 per cent
Shareholders permitted 10 per cent or more in a bank will be subject to a minimum holding period of five years.
The voting rights will be capped at the current level of 15 per cent or as notified by the Reserve Bank from time to time.
Other salient features of the guidelines are:
- Any acquisition of shareholding / voting rights of 5 per cent or more of the paid-up capital of the bank or total voting rights of the bank would continue to require prior approval from the Reserve Bank of India;
- The 'fit and proper' criteria for acquisition of shareholding in a private bank beyond 5 per cent will continue to apply;
- Acquisition of shareholding in a private sector bank by foreign entities would continue to be subject to the extant foreign direct investment (FDI) policy. Currently, in terms of the FDI policy announced in April 2015, aggregate foreign investment in private sector banks from all sources (FDI, FII, NRI) cannot exceed 74 per cent of paid-up capital of the bank. At all times, at least 26 per cent of the paid-up share capital of the private sector banks will have to be held by resident Indians.
- Banks (including foreign banks having branch presence in India) can continue to acquire stake in a bank's equity shares up to 10 per cent of the investee bank's equity capital. However, in case of exceptional circumstances, such as, restructuring of problem/weak banks or in the interest of consolidation in the banking sector, etc, the Reserve Bank may permit them a higher level of shareholding.
- In banks where there are no major regulatory / supervisory concerns, a person may be permitted to acquire higher shareholding, if the same is supported by the board of directors of the concerned bank. In such banks, hostile takeover will not be allowed.
- In banks where there are regulatory / supervisory concerns and, where in the opinion of the Reserve Bank, a change in the ownership / management of the bank is necessary in the interests of the depositors of the bank/public interest, the Reserve Bank may, at its discretion, permit a person to acquire higher shareholding, even if the existing board does not support the same. Such a person may or may not be an existing shareholder;
- In case of existing private sector banks - where specific orders have been passed by the RBI relating to dilution of shareholding by persons/entities/groups, those orders will continue to apply for such shareholding; Where specific approvals have been granted by the RBI for promoters / entities / groups to have shareholding in excess of 10 per cent, they could continue to hold such shareholding in the banks up to the specified period; Where any promoter / promoter group has shareholding in excess of 15 per cent and timelines have already been stipulated by the RBI for bringing it down to 10 per cent, such timelines shall continue to apply for bringing the shareholding down to 15 per cent.