RBI Stays Away From Corporate Entry Into Banking, Allows Higher Promoter Stake
The Reserve Bank of India has stayed away from allowing corporates to promote universal banks, a conditional recommendation made by an internal working group in 2020.
The regulator has, however, accepted 21 of the 33 recommendations made by the group, among which is a proposal to raise the amount of stake that private bank promoters can eventually in their lenders. The remaining recommendations remain under examination, the RBI said.
The cap on promoter stake in private banks has been raised to 26% paid-up voting equity share capital, in the long run, from the current limit of 15%.
"This stipulation should be uniform for all types of promoters and would not mean that promoters, who have already diluted their holdings to below 26%, will not be permitted to raise it to 26% of the paid-up voting equity share capital of the bank," the RBI said.
The promoter, at their own discretion, may bring down their stake in the bank to below 26% after the initial five year lock-in period, the RBI said.
Non-promoter shareholding will be capped at 10% of the paid-up voting equity share capital of the bank, in case of natural persons and non-financial institutions or entities. The cap will be at 15% in case of all categories of financial institutions or entities, supranational institutions, public sector undertaking or government, the RBI said.
The RBI has said that the term ‘paid-up voting equity share capital’ will be uniformly used in all guidelines and instructions of the regulator hereon.
The RBI has also called for a monitoring mechanism to ensure that the control of the promoting entity or a major shareholder of the bank does not end up in the hands of persons found not to be fit and proper.
"Licensing conditions/ 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/ major shareholder of the bank," the RBI said.
According to the accepted recommendations, the non-operating financial holding company will be the preferred structure for all new universal bank licenses. "However, NOFHC may be mandatory only in cases where the individual promoters / promoting entities / converting entities have other group entities," the regulator said.
Other key recommendations accepted by the RBI are:
Pledging of promoter shares during the five year lock-in period should be disallowed.
In case invoking the pledge results in purchase or transfer of shares of the bank beyond the 5% mark, the voting rights of the pledgee will be restricted, till formal RBI approval is sought for regularisation of acquisition of these shares.
Initial paid-up voting equity share capital or net worth for a new universal bank has been raised to Rs 1,000 crore from Rs 500 crore currently.
For small finance banks, the minimum initial paid-up voting equity share capital or net worth requirement be raised to Rs 300 crore from Rs 200 crore currently.
In case of urban cooperative banks seeking to become small finance banks, the initial paid-up voting equity share capital or net worth should be Rs 150 crore (from present Rs 100 crore) which has to be increased to Rs 300 crore in five years (from present Rs 200 crore).
The new initial capital and net worth norms will be applicable for applicants who will apply for a licence after these rules have been issued.
Minimum track record for a non-banking financial company looking to convert to a universal bank has been set at 10 years.
Minimum track record for small finance bank converting to a universal bank is set at five years.
Minimum track record for payment bank converting to small finance bank is at five years, a departure from the group's recommendation of three years.
For small finance banks to be set up in the future, the RBI has allowed eight years after commencement of operations for the bank to list.
For new universal banks, the current time limit of listing six years after commencement of operations continues.
Watch the discussion with Ashvin Parekh and Dhananjay Sinha on RBI review of private bank rules here: