RBI Internal Group To Review Private Bank Ownership Guidelines
RBI’s ownership guidelines for private banks have been in focus ever since the standoff with Kotak Mahindra Bank.
The Reserve Bank of India has set up an internal working group to review existing guidelines on ownership of private banks and their corporate structure. The five-member working group will be set up under the leadership of Prasanna Kumar Gupta, director, Central Board of the Reserve Bank.
The central bank had first released detailed guidelines in the matter in February 2005, after which, specific prescriptions were given out as part of licensing guidelines issued at various points in the past.
The RBI “felt necessary to comprehensively review the extant guidelines on ownership, governance and corporate structure in private sector banks, taking into account key developments over the years which have a bearing on the issue.”
In a statement, the banking regulator said the group will examine and review the existing licensing and regulatory guidelines relating to ownership and control, promoters’ holding, requirement of dilution, control and voting rights, among other things.
RBI’s ownership guidelines have been in focus due to a standoff with Kotak Mahindra Bank. The lender had taken the central bank to court last year after it insisted that the promoter shareholding must be brought down to the regulatory 15% from 30% immediately.
The two sides, however, came to an agreement earlier this year with the regulator permitting promoters of Kotak Mahindra Bank to bring their stake down to 26% in the near term with the intention to dilute further over the long term. In contrast, the RBI has pushed back on Hinduja brothers’ plan to raise stake in IndusInd Bank Ltd. from 15% to 26%, Bloomberg reported on June 5. Reasons for that are not in public domain.
Additionally, the rules governing most recently issued bank licences differ from those that were prevailing in earlier years.
Terms Of Reference For The Group
According the RBI release, the group will look into the following aspects:
- The group will review the existing licensing guidelines for private banks relating to ownership and control and suggest appropriate norms.
- The group will examine eligibility criteria of individuals and entities to apply for banking licences and make recommendations on all related issues.
- It will study the non-operative financial holding company structure and suggest uniform norms for all banks along with a transition path.
- The group will also review and suggest any changes to guidelines with respect to promoter shareholding at the initial licensing stages and subsequently, including timelines for dilution.
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The group will submit its final report by Sept. 30, the RBI said.