Review of Ownership Rules and Structure of Private Lenders

BE/RBINOTE/31/2020

With an aim to bring a harmony amongst banks irrespective of their date of starting operations, RBI has come out with plans to review ownership rules, and structure of Private Lenders.

• In this direction RBI has set up an internal working group to review the ownership guidelines and corporate structure of private sector lenders.
• RBI has also added that with the changing financial market there was 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 as back in February 2006.
• The review is expected to provide an opportunity to harmonize the norms set up at different time periods, irrespective of their date of commencement of business.
• It was earlier pointed out in April this year, that RBI was re-looking at the existing private bank shareholding nomrs in order to create parity in the rules. Kotak Mahindra Bank’s Promoter and Asia’s richest banker, Uday Kotak was allowed to own 26% in the bank in perpetuity, if he was not able to raise further capital.
• In response to this,
  • IndusInd Bank promoters, the Hinduja brothers, had written to the RBI seeking approval to raise stake to 26%.
  • Also Bandhan Bank promoters Bankdhan Financial Holdings continue to hold nearly 60% in the bank.
• It may be noted that RBI’s licensing rules require the promoter of a private bank to reduce the holdings to 40% within three years, 20% within 10 years and to 15% within 15 years of the operations of the bank.

RBI’S PROPOSAL

1. It is proposed that the working group would consist of five members, which includes Prasanna Mohanty and Sachin Chaturvedi, both directors on RBI’s central board. Also RBI Executive Directors, Lily Vadera and SC Murmu will also be on the committee that will submit its report by September 30, 2020.
2. The committee will have to assess the presence licensing guidelines and regulations relating to ownership and control in private sector banks and suggest thereby appropriate norms. Also the committee will have to keep in mind the issue of excessive concentration of ownership and control before they suggest any changes to the present guidelines.
3. Also the committee will study the current regulations on holding of financial subsidiaries through non operative financial holding companies and suggest ways of migrating all banks to uniform regulations.