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RBI accepts 21 of 33 recommendations of internal working group on private banks

RBI accepts 21 of 33 recommendations of internal working group on private banks

The cap on promoters’ stake for 15 years may be raised from the current levels of 15 per cent to 26 per cent of the paid-up voting equity share capital of the bank, says the central bank.

The RBI has notified a lock-in period for promoters’ initial shareholding, limits on shareholding in long run, and dilution requirements and voting rights. The RBI has notified a lock-in period for promoters’ initial shareholding, limits on shareholding in long run, and dilution requirements and voting rights.

After recommendations of the internal working group to review extant ownership guidelines and corporate structure for Indian private sector banks, the Reserve Bank of India (RBI) has accepted 21 of the 33 such recommendations. The IWG had submitted its recommendations on "extant ownership guidelines" and "corporate structure" for the private sector banks.

After accepting these notifications, the RBI has notified a lock-in period for promoters' initial shareholding, limits on shareholding in long run, and dilution requirements and voting rights.

Here are some pointers on these recommendations:-

  • No change may be required in the extant instructions related to initial lock-in requirements, which may continue as a minimum of 40 per cent of the paid-up voting equity share capital of the bank for the first five years.
  • There is no need to fix any cap on the promoters' holding in the initial five years.
  • The cap on promoters' stake for 15 years may be raised from the current levels of 15 per cent to 26 per cent of the paid-up voting equity share capital of the bank. It should be uniform for all types of promoters and would not mean that promoters, who have already diluted their holdings to below 26 per cent, will not be permitted to raise it to 26 per cent of the paid-up voting equity share capital of the bank. If the promoter desires so, he or she can choose to bring down holding to even below 26 per cent, any time after the lock-in a period of five years.
  • No intermediate sub-targets between 5-15 years may be required. However, at the time of issue of licences, the promoters may submit a dilution schedule that may be examined and approved by the RBI. The progress in achieving these agreed milestones must be periodically reported by the banks and monitored by the RBI. However, the submission of a dilution schedule will be mandatory, the said.
  • The non-promoter shareholding will be capped at 10 per cent of the paid-up voting equity share capital of the bank in case of natural persons and non-financial institutions or entities and at 15 per cent of the paid-up voting equity share capital of the bank in case of all categories of financial institutions or entities, supranational institutions, public sector undertaking or government.
  • A monitoring mechanism may be devised to ensure that control of promoting entity or major shareholder of the bank, does not fall in the hands of persons who are not found to be fit and proper. Licencing conditions or approvals for acquisitions may stipulate reporting requirements whenever a shareholder becomes a significant beneficial owner (as defined in the Companies Act, 2013) of the promoting entity or major shareholder of the bank.
  • The internal working group has recommended that the pledge of shares by promoters during the lock-in period, which amounts to bringing the unencumbered promoters' shares below the prescribed minimum threshold, should be disallowed.

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