The recommendations made by Reserve Bank of India's internal working group (IWG) on ownership and corporate structure norms for private sector banks have the potential to make the industry more attractive to private players, ratings agency ICRA said on Thursday.
The report lists some important recommendations for licensing of new PVBs like increasing the cap on promoter holding to 26 per cent of paid-up voting equity share capital from the current level of 15 per cent.
Besides, it proposes to allow large corporate houses as promoters of the bank and to consider large well-managed NBFCs having asset size of over Rs 50,000 crore converting into banks, amongst others.
As per ICRA's analysis, the recommendations are overall positive and will auger well for the growth of banking industry, considering the need to expand bank credit in order to achieve the $5 trillion economy target.
"Increasing private participation in the banking sector is a pressing need given the fact that continuing dependence only on public sector banks (PSB)s can escalate the fiscal bill," said Anil Gupta, Vice President, ICRA.
"Also relying on PSBs for credit expansion could entail significant capital infusion in public banks by Government of India (GoI), which itself is constrained for resources."
According to ICRA, though corporates are eligible for bank licenses as per existing regulations, however, RBI has not accorded banking licence to any corporate house in previous licensing regime in 2013, which could have been a deterrent for fresh applications by corporate groups.
"Corporate governance has evolved for many corporates and they have good market standing," it said.
"Further, there is no precedence of a failure of a corporate backed NBFCs in the past, which supports the argument for awarding banking license to corporate."
The RBI has currently invited comments on the report by January 12, 2021, after which it may issue final guidelines.