HomeFinanceRBI norms: No bank licences for large corporates yet

RBI norms: No bank licences for large corporates yet

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Reserve Bank of India (RBI) has refrained from permitting corporate ownership of banks, putting on hold a working group recommendation that said large corporate and industrial houses may be allowed to promote banks post amendments to the Banking Regulations Act, 1949. The central bank has also not accepted a recommendation to allow well-run, large NBFCs, including those owned by a corporate house, to become banks. Both suggestions, it said, on Friday, are “under examination”.

However, RBI has allowed promoters to retain a 26% shareholding in banks, higher than the current cap of 15%, bringing relief to bankers like Kotak Mahindra Bank’s Uday Kotak. The 26% is in line with the ceiling on the voting rights of a shareholder and in keeping with the current FDI policy. The PJ Nayak Committee had in 2014 recommended a promoter holding of 25%, on the grounds that low promoter shareholding could make banks vulnerable by weakening the alignment between the management and shareholders.

Post the five-year lock-in, promoters can choose to lower holdings to below 26%. In the initial five-year lock-in period, the promoter’s stake must be a minimum of 40%.

RBI has simplified the ownership rules for non-promoter shareholders specifying a cap of 15% for all categories of financiaI Institutions, supranational institutions, PSUs and the government. It has retained the cap of 10% on the shareholding of non-promoter shareholders who are natural persons and non-FIs.

Though the preferred structure, an NOFHC (Non-mandatory Non-operative Financial Holding Company) will be mandatory only where the individual promoters, promoting and converting entities have other group entities, provided these promoters and entities are eligible to set up a Universal Bank or a Small Finance Bank (SFB). Banks that currently operate under an NOFHC can dismantle it if they do not have other group entities in their fold.

The initial minimum capital requirements for new bank licences have been raised to `1,000 crore for a universal bank from `500 crore at present and `300 crore for an SFB from `200 crore.

Future SFBs must be listed within ‘six years from the date of reaching the net worth equivalent to the prevalent entry capital requirement prescribed for universal banks’ or ‘10 years from the date of commencement of operations’, whichever is earlier. The internal working group constituted on June 12 last year, under the chairmanship of PK Mohanty, director, central board of RBI, had submitted its report in November 2020.

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