An internal working group set up by the RBI has proposed raising the limit for promoters’ participation in private banks from 15% currently to 26% in 15 years.
The group also recommended that large corporations or industrial enterprises be allowed to promote banks only after changes in the law on banking regulation and the strengthening of the mechanism for the supervision of conglomerates, including consolidated supervision.
The Reserve Bank of India had established the Internal Working Group (IWG) on June 12, 2020 to review the existing ownership guidelines and corporate structure for Indian private sector banks. The central bank released the group’s report on Friday.
The mandate of the IWG included, inter alia, a review of the eligibility criteria for persons / entities wishing to apply for a banking license; review of the preferred corporate structure of banks and harmonization of standards in this regard; and the revision of standards for long-term participation in banks by promoters and other shareholders.
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Regarding the eligibility of promoters, he said that large corporations / industrial enterprises could only be licensed as bank promoters after the necessary changes in the Bank Regulations Act 1949 to deal with loans and debts. related exposures between banks and other entities of the financial and non-financial group.
He also pleaded in favor of strengthening the oversight mechanism of large conglomerates, including consolidated oversight.
The panel also suggested that large, well-run non-bank financial corporations (NBFCs) with an asset size of Rs 50,000 crore and above, including those owned by a corporation, could be considered for conversion to banks – subject to the completion of 10 years of operations.
He recommended that the minimum initial capital requirement for licensing new banks be increased from Rs 500 crore to Rs 1000 crore for universal banks and from Rs 200 crore to Rs 300 crore for small financial banks.