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RBI accepts 21 recommendations of working group on pvt banks


The Reserve Bank of India has accepted 21 of the 33 recommendations of the Internal Working Group that were set up to review the extant guidelines on ownership and corporate structure for Indian private sector banks.

The major recommendations accepted include raising the cap on promoters’ stake from the current levels of 15% to 26% of the paid-up voting equity share capital of the bank. The RBI stated that 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%, would not be permitted to raise it to 26% of the paid-up voting equity share capital of the bank. 

As for listing requirements, the central bank stated that small finance banks to be set up in the future would be expected to list within eight years of commencement of operations, while universal banks would list within six years of commencement of operations.

The IWG is of the view that the pledge of shares by promoters during the lock-in period, which amounts to bringing the unencumbered promoters’ shares below the prescribed minimum threshold, should be disallowed.

As part of the framework for scale-based regulation of NBFCs, the Reserve Bank may consider putting in place a tighter, bank-like regulatory framework for large NBFCs. 

The criteria to assess the ‘fit and proper’ status of promoters or major shareholders as prescribed in the ‘Guidelines for on tap Licensing of Universal Banks in the Private Sector – 2016’ are appropriate and may be continued. 

Initial capital requirement

The RBI stated that the minimum initial capital requirement for licensing new banks should be enhanced as below: 

(i) For Universal Banks: The initial paid-up voting equity share capital/ net worth required to set up a new universal bank, may be increased to Rs 10 billion (from present Rs 5 billion).

(ii) For SFBs: The initial paid-up voting equity share capital/ net worth required to set up a new SFB, may be increased to Rs 3 billion (from present Rs 2 billion). 

(iii) For UCBs transiting to SFBs: The initial paid-up voting equity share capital/ net worth should be Rs 1.5 billion (from present Rs 1 billion) which has to be increased to Rs 3 billion in five years (from present Rs 2 billion).

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