RBI panel makes proposal: business barons may run banks

‘Raise private bank promoter cap to 26%’

They have suggested permitting large corporate and industrial houses to promote private banks. Once the rules are made on the lines of the proposals, there would be 3-4 NBFCs which could apply to become banks while another 3-4 finance companies promoted by large business houses could become banks. Banks now under NOFHC may be allowed to exit from such a structure if they do not have other group entities in their fold.

The Reserve Bank of India's working group has recommended that large industrial houses be allowed to be bank promoters, meaning they can take significant stakes, something the central bank has strongly objected to in the past.

The IWG was constituted by RBI to review ownership guidelines and corporate structures of private sector banks. For years, the question of allowing conglomerates to float banks has been a contentious issue with the banking laws barring it and large corporates pushing back.

The panel's recommendations may also pave the way for shadow banks to convert into lenders.

The panel has also recommended hiking the cap for promoter stake from 15 percent to 26 percent in the long-run. In the past 10 years, the assets size of NBFC grew at a compounded annual growth rate of 18.6 percent, exceeding the 10.7 percent rate of growth reported by scheduled commercial banks.

The committee has also recommended listing of SFBs within six years from the date of reaching net worth equivalent to prevalent entry capital requirement prescribed for universal banks" or "ten years from the date of commencement of operations', whichever is earlier.

The panel also suggested that payments banks can convert into small finance banks after three years of operations, potentially benefiting Paytm, Jio and Airtel payments banks. Banks licensed before 2013 may move to a NOFHC structure at their discretion, once the NOFHC structure attains a tax-neutral status.

"Where corporate house is a promoter, strict regulations on the use of funds held with the bank and monitoring of related party transactions will be essential".

The RBI has sought comments of stakeholders and members of the public, to be submitted by January 15. "If new rules are tougher, legacy banks should also confirm to new tighter regulations, but transition path may be finalized in consultation with affected banks", the report said. Thereafter it has to be brought down to 30 per cent within 10 years and 15 per cent within 15 years. However, they may be permitted to make total investments in a financial or non-financial services company, which is not a subsidiary or joint venture or associate up to 20% of the bank's paid-up share capital and reserves.

IWG suggested doubling the minimum initial capital requirement for licensing new banks from Rs 500 crore to Rs 1,000 crore for universal banks and raising it from Rs 200 crore to Rs 300 crore for small finance banks. RBI will examine the comments and suggestions before taking a view in the matter.



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