RBI constitutes working group to review private bank shareholding norms

The Reserve Bank of India on Friday constituted an internal working group to review the ownership guidelines and corporate structure for private sector lenders. The central bank said that this review would provide an opportunity to harmonise norms applicable to all banks irrespective of when they commenced operations.

The central bank noted that changing financial market landscape arose a need to relook at these regulations since the broad policy relating to ownership and control in private lenders has been guided by the framework issued way back in February 2005.

“It is felt necessary to compressively 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,” the RBI noted. “The review would provide an opportunity to harmonise the norms applicable to banks set up at different time periods, irrespective of their date of commencement of business.”

In its edition dated May 30, ET had reported that the RBI was relooking at the existing private bank shareholding norms to create parity in the rules. Kotak Mahindra Bank promoter Uday Kotak was allowed to own 26% in the bank in perpetuity, if he did not raise further capital. On the back of this IndusInd Bank promoters, the Hinduja brothers had written to the RBI, seeking approval to raise stake to 26%. Meanwhile, Bandhan Bank promoters Bandhan Financial Holdings continue to hold nearly 60% in the bank.

RBI’s licensing rules require the promoter of a private bank to reduce holding to 40% within three years, 20 percent within 10 years and to 15 percent within 15 years of the operations of the bank.

The working group will consist of five members including Prasanna Mohanty, and Sachin Chaturvedi both directors on RBIs central board. RBI executive directors Lily Vadera and SC Murmu will also be on the committee which will submit its report by September 30.

As per the terms of reference the committee will have to assess the present licensing guidelines and regulations relating to ownership and control in private sector banks and suggest appropriate norms. The committee will have to keep in mind the issue of excessive concentration of ownership and control before suggesting changes to the present guidelines.

The committee will also study current regulations on holding of financial subsidiaries through non- operative financial holding company and suggest ways of the migrating all banks to a uniform regulations.

[Source – Economic Times]


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