RBI Report Could Help Big Businesses Launch and Promote Banks

‘Raise private bank promoter cap to 26%’

‘Raise private bank promoter cap to 26%’

This is subject to the completion of 10 years of operations and meeting due diligence criteria.

The committee, led by PK Mohanty, has also proposed converting of payments banks into a small finance bank.

India's banking sector could be in for an overhaul if the RBI implements a report authored by its internal working group on private bank ownership.

The panel said large corporate or industrial houses be permitted to promote 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. The central bank released the groups' report on Friday.

As on March 31, 2020, the asset size of India's NBFC sector, including housing finance companies, stood at 688 billion USA dollars.

It recommended increasing the size of the stake that promoters in private banks can hold to 26% from the current 15% over a 15-year time frame.

In another important recommendation, the IWG suggested that well-run large Non-banking Finance Companies (NBFCs), with an asset size of Rs 50,000 crore and above, including those which are owned by a corporate house, may be considered for conversion into banks. On non-promoter shareholding, the working group recommended a uniform cap of 15 per cent for all shareholders.

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The panel also suggested that payments banks can convert into small finance banks after three years of operations, potentially benefiting Paytm, Jio and Airtel payments banks.

The central bank should also continue with the present structure of a non-operative financial holding company (NOFHC) for all new licences issued to universal banks. However, when Tata Sons came to know that the guidelines of the Reserve Bank of India were too strict, which could harm other businesses of the Tata Group, it withdrew the banking application.

While banks licensed before 2013 may move to a NOFHC structure at their discretion, once the NOFHC structure attains a tax-neutral status, all banks licensed before 2013 shall move to the NOFHC structure within five years from the announcement of tax-neutrality.

"RBI may take steps to ensure harmonisation and uniformity in different licensing guidelines, to the extent possible".

Some of its other recommendations include doubling the minimum initial capital requirement for new universal banks to Rs 1,000 crore and small finance banks to Rs 300 crore from Rs 200 crore. A committee of the Reserve Bank (Bank) has suggested to change the banking law and offer banking license to the Industrial House. RBI has sought comments on the draft report by 15 January. The committee said that such NBFCs, with at least a 10-year track record, may be allowed to convert into banks.

In 2013-14, the RBI invited applications for new private banks.

For urban cooperative banks looking to transition to a small finance bank, The initial paid-up voting equity share capital/ net worth should be Rs 150 crore, which has to be increased to Rs 300 crore in five years, it further added.

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