IGI Logo

RBI increases promoter holding limit to 26%

Revised guidelines to aid uniformity in regulations and promote transparency

RBI has approved several recommendations made by the Internal Working Group (IWG) on ownership and corporate structure of Indian Private Sector Banks. The revised guidelines will be applicable to both existing and new Banks and will help usher uniformity in regulations, thus promoting fairness and transparency. Following are the key recommendations approved by RBI:

* Promoter holding limit revised to 26%: In a significant move, RBI has approved an increase in the promoter ownership limit to 26% of the voting equity share capital of a Bank for both existing and newly licensed Banks. Promoters who have already diluted their holdings to below 26% will also be eligible to increase their stake back up to 26% of the voting equity share capital. In the past, promoters of a few Banks like IIB have applied to RBI to increase their holdings shortly after RBI allowed promoters of KMB to maintain promoter holding at 26% based on their licensing conditions. The increase in the promoter holding will enable promoters to infuse capital and increase their stake and curtail the limit to which promoters now need to reduce stake either for newly licensed Banks or cases where Bank takeovers have occurred.

* Newly licensed Banks - Initial lock-in requirement of 40% for the first five years remains unchanged: For newly licensed Banks, the extant instructions related to initial lock-in requirements of minimum 40% promoter ownership for the first five years would continue and the same would need to be reduced to 26% in 15 years. However, intermediate sub-targets between 5-15 years are no longer required. The promoter, if desired, will be able to bring down the holding to below 26% after the lock-in period of five years.

* NOFHC continues to be the preferred structure for all new Universal Bank licenses: NOFHC will remain the preferred structure for all new Universal Bank licenses to be issued. However, it will be mandatory only in cases where the individual promoters/promoting entities/converting entities have other group entities. RBI has clarified that this will be subject to the promoters/promoting entities being eligible to set-up a Universal Bank/Small Finance Bank, wherein it still hasn't allowed corporate entities to seek Universal Bank licenses. RBI has also allowed Banks to exit from the NOFHC structure if they do not have other group entities in their fold.

* The minimum capital requirement for both a Universal Bank and SFB has been increased: The net worth required to set up a new Universal Bank has been increased to INR10b from the current INR5b, while for SFB the minimum net worth requirement has been increased to INR3b from the current INR2b. The revised norms will be applicable to entities whose application for a banking license is received after the date of approval of these recommendations.

* Listing requirements for Universal Banks and SFBs: Universal Banks will continue to be listed within six years of commencement of operations. SFBs are required to get listed within six years from the date of reaching the net worth equivalent to prevalent entry capital requirements prescribed for Universal Banks or eight years from the date of commencement of operations, whichever is earlier.

Other recommendations:

* Non-promoter shareholding limit has also been increased to 10% of the voting equity share capital for non-financial institutions/entities and at 15% for all categories of financial institutions/entities, public sector undertaking, or the government. However, RBI's prior approval to acquire shareholding or voting rights of 5% or more of the voting equity share capital of the concerned Bank will continue.

* Regulations for NBFCs to be made tighter like a Bank and will be based on the scale-based regulatory framework.

* Pledging of shares in excess of the minimum holding requirement to be disallowed: Pledge of shares by promoters during the lock-in period, which amounts to indirectly bringing the promoter ownership below the prescribed minimum threshold will be disallowed.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer