RBI-Kotak Standoff: Review Panel For Private Bank’s Ownership Norms On Cards
The Reserve Bank of India (RBI) logo is displayed inside the central bank building. (Photographer: Karen Dias/Bloomberg)

RBI-Kotak Standoff: Review Panel For Private Bank’s Ownership Norms On Cards

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Amid calls for changes to the contentious ownership norms for private sector lenders, the Reserve Bank of India is likely to look into various proposals, including setting up of a review panel and making the regulations more friendly towards Indian control of home-grown banks.

This comes at a time the regulator has been dragged to the Bombay High Court by Kotak Mahindra Bank Ltd. Its peer Bandhan Bank Ltd. merged with Gruh Finance Ltd., in a deal widely considered to have been driven by the need to comply with the promoter shareholding norms.

The RBI has received at least three proposals and one of them relates to setting up a review committee on ownership norms for private sector banks and all options are being explored, a source told PTI on the condition of anonymity.

Other proposals relate to individual cases, including granting more time and more possible routes to meet the norms, the source said.

The common viewpoint is that the stand-off with Kotak Mahindra Bank needs to be resolved at the earliest as it might be sending a wrong impression to the investor community, including the foreign institutions.

An email sent to the banking regulator did not elicit a response immediately. Governor Shaktikanta Das declined to answer a specific question on whether the RBI is mulling re-looking at the promoter shareholding norms, citing that the matter is sub judice.

It can be noted that Kotak Mahindra Bank had taken the unprecedented action of dragging the RBI to court last year, days ahead of the Dec. 31 deadline to get the promoter holding down to 20 percent from the around 30 percent.

The Bombay High Court refused any temporary relief to Kotak Mahindra Bank and the matter is scheduled to come up for hearing on Tuesday.

The bank had proposed one preference share route to reduce the promoter shareholding in August 2018, only to be shot down by the regulator.

In late December, there was also speculation of billionaire investor Warren Buffet’s Berkshire Hathway investing in Kotak Mahindra Bank.

Kotak has found support from the right-wing bodies, who have been urging the RBI to not insist on the promoter holding requirements, saying this will naturally increase the foreign investors’ play in the Indian banks.

The Centre for Economic Policy Research, a right-leaning think tank, has said it is high time for a review of regulations and for re-working the model of governance and ownership norms for Indian private sector banks.

The Swadeshi Jagaran Manch has also said there was an urgent need for a rethink on the regulatory framework for private bank ownership so that it remains in Indian hands.

Almost all major private sector lenders have ownership of over 50 percent by foreign investors collectively. The RBI wants the banks to have a diversified ownership in the best interest of governance practices and also limits the voting rights in cases.

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