Reported by: banking|Updated: November 23, 2020
An internal working group of the Reserve Bank of India has proposed that large corporates or industrial houses may be permitted to own banks if they meet certain regulations. The report said large corporate/industrial houses may be allowed as promoters of 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. This is something that RBI had been opposing in the past. The report also mooted that well-run large NBFCs, with an asset size of Rs 50,000 crore and above, including those which are owned by a corporate house, may also be considered for conversion into banks, subject to completion of 10 years of operations. Some of the large industrial houses like Aditya Birla Group, Bajaj Group, Mahindra and Mahindra and Tata Sons already have large NBFCs with more than a decade of operations. In fact, these NBFCs are bigger than many mid-sized banks in the country. The working group also recommended a more liberal structure that allows promoters to hold higher shareholding in private banks. It suggested that the cap on promoters’ stake should be raised to 26% over a period of 15 years from the current 15%.
On non-promoter shareholding, the working group recommended a uniform cap of 15% for all shareholders. The working group says this will enable promoters to infuse higher funds which are critical for the expansion of banks and work as a cushion to rescue the bank in times of distress/cyclical downturn. Currently, the rules prescribe that the promoter of a private bank should reduce the holding to 40% within 3 years, 20% within 10 years and 15% within 15 years of operations.