RBI panel suggests review of ownership norms of private sector banks
24 November 2020
An internal working group set up by the Reserve Bank of India (RBI) has suggested that well run large non-banking finance companies (NBFCs), with an asset size of Rs50,000 crore and above, including those owned by corporate houses, may be allowed to convert into banks.
This is, however, subject to the NBFCs completing 10 years of operation and meeting due diligence criteria besides complying with some additional conditions specified in this regard.
For large corporate/industrial houses, the panel suggested that they may be allowed as promoters of banks only after necessary amendments to the Banking Regulation Act, 1949 (to prevent connected lending and exposures between the banks and other financial and non-financial group entities) and strengthening of the supervisory mechanism for large conglomerates, including consolidated supervision.
Payments banks intending to convert to a small finance bank, there should be a track record of 3 years of experience as payments bank.
Small finance banks and payments banks may be listed within ‘6 years from the date of reaching net worth equivalent to prevalent entry capital requirement prescribed for universal banks’ or ‘10 years from the date of commencement of operations’, whichever is earlier.
The minimum initial capital requirement for licensing new banks should be enhanced from Rs500 crore to Rs1,000 crore for universal banks, and from Rs200 crore to Rs300 crore for small finance banks.
The cap on promoter stake in the long run (15 years) may be raised from the current level of 15 per cent to 26 per cent of the paid-up voting equity share capital of the bank, the panel suggested.
As regards non-promoter shareholding, a uniform cap of 15 per cent of the paid-up voting equity share capital of the bank may be prescribed for all types of shareholders, it added.
Non-operative financial holding company (NOFHC) should continue to be the preferred structure for all new licences to be issued for universal banks. However, it should be mandatory only in cases where the individual promoters / promoting entities/ converting entities have other group entities.
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.
Till the NOFHC structure is made feasible and operational, the concerns with regard to banks undertaking different activities through subsidiaries/ joint ventures/ associates need to be addressed through suitable regulations.
Banks currently under NOFHC structure may be allowed to exit from such a structure if they do not have other group entities in their fold.
Reserve Bank may take steps to ensure harmonisation and uniformity in different licensing guidelines, to the extent possible. Whenever new licensing guidelines are issued, if new rules are more relaxed, benefit should be given to existing banks, and if new rules are tougher, legacy banks should also conform to new tighter regulations, but a non-disruptive transition path may be provided to affected banks.
RBI has placed the report on its website for comments of stakeholders and members of the public. Comments on the report may be submitted by 15 January 2021 through email. RBI will examine the comments and suggestions before taking a view in the matter.
The Reserve Bank of India RBI) had constituted an Internal Working Group (IWG) on June 12, 2020 to review extant ownership guidelines and corporate structure for Indian private sector banks. The Terms of Reference of the IWG inter alia included review of the eligibility criteria for individuals/ entities to apply for banking license; examination of preferred corporate structure for banks and harmonisation of norms in this regard; and, review of norms for long-term shareholding in banks by the promoters and other shareholders.