Hinduja Group Favours 26% Promoters’ Stake In Private Banks
A guard stands at the entrance to an IndusInd Bank Ltd. branch in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Hinduja Group Favours 26% Promoters’ Stake In Private Banks

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IndusInd Bank Ltd.’s promoter, the Hinduja Group will get its wish to raise shareholding in the private bank to 26% if the Reserve Bank of India accepts the report of Internal Working Group (IWG) on the Review of Extant Ownership Guidelines and Corporate Structure of Indian private sector banks.

Presently, promoter stakes are capped at 15% in private sector banks as per the extant guidelines of the RBI.

Welcoming the report, Ashok Hinduja, the Chairman of the Hinduja Group of Companies (India), said shareholder equity has to be the first line of defence in a robust banking system.

“The report of IWG rightfully puts a greater onus on the promoter-shareholders to exercise oversight through a higher shareholding limit of 26% with commensurate voting rights,” he said in a statement.

“It helps strengthen the institutional framework by ensuring the promoter responsibility with more skin in the game, supervisory stance for large conglomerates, including consolidated supervision, will ensure the necessary check and balance in the system,” he added.

Hinduja, however, cautioned that ring-fencing the banking sector from a myriad of emerging risks has to be a constant endeavour, and the RBI will exercise a continuous vigil as it has done in the past.

Kotak Mahindra Bank and the RBI had announced a truce earlier this year under which the central bank allowed promoter Uday Kotak and entities linked to him to hold a 26% stake after the regulator was dragged to court.

Also read: RBI, Kotak Mahindra Bank Reach Agreement On Promoter Shareholding Tussle

Uday Kotak was granted a reprieve from diluting his ownership stake in January 2020 and continues to hold 26% ownership of Kotak Mahindra Bank, albeit with certain restrictions on voting rights.

The exception had happened even as smaller lender Bandhan Bank was penalised for not bringing down the stake. The truce had led IndusInd Bank's promoters to seek similar treatment on parity grounds.

The central bank made the report public on Friday and has sought comments by January 15, 2021 before taking a view in the matter.

The group has also recommended that large corporate/industrial houses may be permitted to promote banks only after necessary amendments to the Banking Regulations Act, 1949 to deal with connected lending and exposures between the banks and other financial and non-financial group entities.

Also read: Corporate Houses Setting Up Banks? An RBI Group Feels It’s Time To Open Up

It also made a case for the strengthening of the supervisory mechanism for large conglomerates, including consolidated supervision.

Also read: RBI Working Group Suggests Allowing Large NBFCs To Convert Into Banks

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