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No bar on acquiring stake in banks

Deputy governor of the Reserve Bank of India R. Gandhi is of the view that a firm, whose application for bank license has been rejected by the regulator, buys a strategic stake in a bank, it does not amount to back-door entry into banking. Such a firm is required to submit relevant application to RBI and RBI will examine such an application on merit, he said. He wondered what is back-door entry saying if any entity wants to buy more than 5% stake in an existing bank, the application has to be made to RBI and RBI will do a due diligence then. In such a process, the entity will be a shareholder, he clarified, adding that when RBI rejects its application, it does not bar the entity from buying a stake. There has been a recent report that NBFC L&T Finance, whose application for banking license did not yield any result, has been in talks with YES Bank to buy the bank’s promoters’ stake of around 23%.

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