Promoters can hold 49% in private banks
By Uday Chatterjee | 08 Jun 2002
In the early 90s, when the government considered entry of new private banks, the stipulation was that these banks should have a minimum capital base of Rs 100 crore and the entire capital could be brought in initially by the promoters. However, in order to ensure that the promoters do not have absolute control over the banks, it was stipulated that the paid-up capital be brought to 40 per cent.
In terms of the revised guidelines for entry of new private sector banks issued on 3 January 2001, the promoters contribution for setting up a new bank was restricted to 40 per cent of the paid-up capital of the bank at any point of time. In case the initial contribution to capital was in excess of the minimum proportion of 40 per cent, the promoters were required to dilute their excess stake after one year of the banks operation.
The promoters contribution is to consist of equity of the Indian shareholder and foreign co-promoter, if any. Later, the RBI had, in February 2002, clarified that foreign direct investment (FDI) up to 49 per cent from all sources would be permitted in private sector banks under the automatic route, subject to the conformity with the guidelines issued from time to time.
Therefore, FDI through strategic investment or private placement in a private sector bank could go up to 49 per cent of the banks equity. This would be higher than the limit of 40 per cent prescribed for Indian promoters. The foreign shareholder would, therefore, have a bigger clout with their higher shareholding.
Private banks have been telling the government that while the FDI norms in the banking sector allow a foreign player to hold as much as 49 per cent, the holding level for Indian promoters of private banks continued to be limited at a maximum of 40 per cent. This, the banks had argued, went against the concept of a level-playing field as the foreign players clearly stand to benefit.
Keeping this in view, the RBI, in consultation with the government, has revised the norm for Indian promoters holdings. The position was re-examined in consultation with the government and the maximum limit of shareholding of Indian promoters in private sector banks has now been raised to 49 per cent of their paid up capital, the RBI said. It also added that the other licensing conditions for entry of new banks and those stipulated for FDI would remain the same.
The other licensing conditions for entry of new banks and those stipulated for FDI will remain the same, the RBI added.
The revised norm will therefore provide more comfort level to the Indian promoters. As far as the foreign shareholders are concerned, their presence in the private banking sector has not been compromised.
