RBI recommends overhaul of the banking sector


An Indian central bank task force has recommended a series of changes that could transform the country’s banking landscape by paving the way for large industrial conglomerates to establish banks.

The proposals could also allow large non-bank financial firms and niche payment banks to convert into lenders.

In a report released on Friday, the committee recommended that banking regulations be changed to allow large industrial companies to act as so-called bank promoters, meaning they could take a significant stake in a lender, which the central bank strongly resisted. past.

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Besides opening up the banking sector, the committee also suggested adjusting the size of stakes that major shareholders can hold in a lender.

For non-promoter holdings, a uniform cap of 15% instead of a tiered structure was suggested by the committee, which was formed in June to review the ownership guidelines and corporate structure of the banks of the Indian private sector.

He recommended increasing the size of the stake that private bank promoters can hold to 26% from the current 15% over a 15-year period.

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In 2018, billionaire banker Uday Kotak, managing director of Kotak Mahindra Bank, sued the central bank in court over an order from the regulator to reduce its stake in the lender to 15%.

The recommendations of the expert group can also pave the way for the conversion of shadow banks into lenders. A non-bank financial corporation (NBFC) or shadow bank with assets of 500 billion rupees ($ 6.75 billion) and more can be considered a bank after 10 years of operations, according to the report.

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