The Reserve Bank of India today released the much-awaited modified rules for ownership and corporate structure of private banks in India. While 21 out of 33 recommendations made by the Internal Working Group have been accepted, the most controversial of the lot- relating to corporate ownership of banks- has not been accepted by RBI just yet, and continues to be under examination.

“After examining the comments and suggestions received from the stakeholders and members of the public, it has been decided to accept 21 recommendations (some with partial modifications, where considered necessary)... The remaining recommendations are under examination,” RBI’s press release said.

While the Internal Working Group had recommended that large corporate/industrial houses be allowed as promoters of banks after necessary amendments to the Banking Regulations Act, 1949, the Reserve Bank of India did not consider this recommendation in the set of guidelines released today. It may well be a polite “no” from the regulator, which maintained that these and other recommendations which did not find a mention in today’s rules remain under examination.

Here are some of the other changes brought about by private banking ownership rules.

Promoters Allowed to Hold Upto 26% Stake In Long Term

Among the biggest changes brought about is increasing the long-term promoter stake cap to 26 percent from 15 percent currently.

“The cap on promoters’ stake in long run of 15 years may be raised from the current levels of 15 percent to 26 percent of the paid-up voting equity share capital of the bank. This stipulation should be uniform for all types of promoters and would not mean that promoters, who have already diluted their holdings to below 26 percent, will not be permitted to raise it to 26 percent of the paid-up voting equity share capital of the bank. The promoter, if he/she so desires, can choose to bring down holding to even below 26 percent, any time after the lock-in period of five years,” it said.

Non-Promoter Stake Cap Remains

Non-promoter stake, however, continues to be capped at 10 to 15 percent, with explicit RBI approval still required to increase stake above 5 percent in any private bank. “Non-promoter shareholding will be capped at 10 percent of the paid-up voting equity share capital of the bank in case of natural persons and non-financial institutions/entities and at 15 percent of the paid-up voting equity share capital of the bank in case of all categories of financial institutions/entities, supranational institutions, public sector undertaking or Government.”

Banks Can Collapse NOFHC Structure if They Don’t Have Other Group Entities

While a non-operative financial holding company (NOFHC) structure continues to be the preferred structure for all new licenses to be issued for Universal Banks, it will now only be mandatory in cases where the individual promoters / promoting entities / converting entities have other group entities. Banks currently under NOFHC structure are, however, allowed to exit from such a structure if they do not have other group entities in their fold.

Eligibility of Promoters

As part of the framework for scale-based regulation of NBFCs, the Reserve Bank may consider putting in place a tighter, bank-like regulatory framework for large NBFCs. The minimum requirement on a track record of the experience of promoting entity, including for a converting NBFC, continues at 10 years for Universal Banks, and 5 years for Small Finance Banks (SFBs) and Payment Banks (PBs).

Higher Initial Capital Needed to Set Up Banks

The minimum initial capital requirement for licensing new banks has also been increased to Rs 1000 crores for Universal Banks versus Rs 500 crores earlier, and to Rs 300 cr for SFBs versus Rs 200 crores earlier.

Listing Requirements

All small finance banks to be set up in future would have to be listed within eight years from the date of commencement of operations. Universal banks will have to continue to be listed within six years of commencement of operations.

Pledge of shares

Pledge of shares by promoters during the initial five-year lock-in period has been disallowed. The Reserve Bank will also introduce a reporting mechanism for pledging shares by promoters of private sector banks.

Harmonisation of various licensing guidelines

With each set of bank licenses granted, RBI has over the years changed requirements or conditions for granting licenses which have led to differentiated rules for various banks. Now, whenever a new licensing guideline is issued, if new rules are more relaxed, the benefit will be given to existing banks immediately. If new rules are tougher, legacy banks would also have to conform to new tighter regulations, but the transition path may be finalised in consultation with affected banks to ensure compliance with new norms in a non-disruptive manner.

First Published:Nov 26, 2021 4:02 PM IST