RBI changes ownership and corporate structure standards for private banks

  • RBI has accepted 21 of 33 recommendations submitted by a central bank task force on ownership and corporate structure of private sector banks.
  • Among other recommendations, the holding cap for long-term promoters of 15 years should be raised to 26% from 15%.
  • Small financial banks must now be listed within eight years of commencing operations.

IndusInd Bank could benefit from RBI’s latest change in ownership standards as developer Hinduja Group may finally be able to increase its stake in the bank.

This comes after the Reserve Bank of India (RBI) brought new guidelines on ownership and corporate structure standards for private sector banks. The central bank accepted 21 of 33 recommendations submitted by a central bank task force.

Among other changes, it raised the cap on sponsors’ equity from 15% to 26% of the bank’s paid-up voting capital.

“This move will certainly allow the promoters to increase their stake in the bank to 26% from 15% currently, which is positive. The only question is whether they will really increase the stake, as the stock has corrected too much the past few years and I’m not very sure about Hinduja’s financial situation right now,” said Nitin Aggarwal, research analyst at Motilal Oswal.

In addition, the RBI may introduce a reporting mechanism for the pledging of shares by sponsors of private sector banks.

Additionally, RBI can create a monitoring mechanism to ensure that control of the sponsoring entity/major shareholder of the bank does not fall into the hands of persons who are not deemed fit and proper.

Here are some important changes accepted by RBI based on the recommendations made by the internal working group:

Ownership and Corporate Structure Changes for Indian Private Sector Banks
Promoter holding ceiling increased to 26% from 15% currently
Non-promoter shareholding will be capped at 10%
Ownership of natural persons and non-financial institutions/entities capped at 15%
Small financial banks will now be listed within eight years of commencing operations
Universal banks will be listed within six years of their operations
RBI to introduce reporting mechanism for pledge of shares by private sector bank sponsors
The net worth required to start a new universal bank has increased to ₹1,000 crore from the current ₹500 crore
The net worth required to start a new small finance bank has increased to ₹300 crore from the current ₹200 crore

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