RBI says no corporate ownership of banks for now

The Reserve Bank of India (RBI) today said that the large corporate and industrial houses may be allowed as promoters of banks only after necessary amendments to the Banking Regulations Act, 1949.

The RBI's concerns regarding corporate houses are related to dealing with 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.

RBI, however, said that it may examine the necessary legal provisions that may be required to deal with all concerns in this regard.

With regard to well-run large Non-banking Financial Companies (NBFCs) , with an asset size of Rs 50,000 crore and above, including those which are owned by a corporate house, the RBI has said that "it may be considered for conversion into banks provided they have completed 10 years of operations and meet the due diligence criteria and satisfy the additional conditions specified in this regard."

The internal working group to review extant ownership guidelines and corporate structure for Indian private sector banks had earlier made a total of 33 recommendations. "After examining the comments and suggestions received from the stakeholders and members of the public, it has been decided to accept 21 recommendations. The remaining recommendations are under examination," states the RBI.

The big change is with regard to promoters' stake in private sector banks. The RBI has accepted the working group recommendations for a higher promoter stake.

"The cap on promoters' stake in the long run of 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. This stipulation should be uniform for all types of promoters and would mean that promoters, who have already diluted their holdings to below 26 per cent, will be permitted to raise it to 26 per cent of the paid-up voting equity share capital of the bank," states the RBI.

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