RBI Releases Expert Panel Report on Existing Ownership Guidelines and Corporate Structure for Private Banks – ANI

New Delhi [India]Nov 20 (ANI): Reserve Bank of India (RBI) on Friday released a report on existing ownership guidelines for Indian private sector banks, which was prepared by an internal working group (IWG) appointed by the central bank.
RBI constituted the IWG on June 12, 2020 to review the existing ownership guidelines and corporate structure of Indian private sector banks.
According to a statement, the terms of reference of the IWG included among others a review of eligibility criteria for individuals/entities wishing to apply for a banking license, review of the preferred business structure for banks and harmonization standards in this regard and the review of standards for long-term participation in banks by promoters and other shareholders.
RBI has set out some of the IGW’s key recommendations regarding the guidelines in an official statement.
“A cap on long-term (15-year) promoter participation may be raised from the current level of 15% to 26% of the bank’s paid-up voting share capital, a uniform cap of 15% of the paid-up share capital with voting rights of the bank may be prescribed for all types of shareholders and large industrial firms/houses may only be permitted as bank promoters after necessary amendments to the Banking Regulation Act 1949 ( to prevent linked loans and exposures between banks and other financial and non-financial entities of the group),” he said.
Large, well-run Non-Banking Financial Companies (NBFCs) with an asset size of Rs 50,000 crore and above, including those owned by a company, may be considered for conversion to banks subject to the completion of 10 years of operations and meeting the due diligence criteria and compliance with the additional conditions specified in this regard.
For payment banks wishing to transform into a small financing bank, a track record of three years of experience as a payment bank may be considered sufficient.
“Small financial banks and payment banks can be listed within ‘six years from the date they reach a net worth equivalent to the prescribed entry capital requirement for universal banks’ or ’10 years from date of commencement of operations’, whichever comes first,” reads the official statement.
The IGW also recommended that the minimum initial capital requirement for licensing new banks be increased from Rs 500 crore to Rs 1,000 crore for universal banks and from Rs 200 crore to Rs 300 crore for small financial banks. .
Referring to Non-Operating Financial Holding Companies (NOFHCs), the IGW said: “The NOFHC should continue to be the preferred structure for all new licenses to be issued to universal banks. However, it should only be mandatory in cases where individual Promoters/Promoter Entities/Conversion Entities have other Group Entities.”
While banks licensed before 2013 can transition to a NOFHC structure at their discretion, once the NOFHC structure achieves tax neutral status, all banks licensed before 2013 must transition to the NOFHC structure within five years of the announcement. fiscal neutrality.
“Until the NOFHC structure is made possible and operational, concerns regarding banks undertaking different activities through subsidiaries/joint ventures/associates should be addressed through appropriate regulations,” according to the official statement.
Banks currently under the NOFHC structure may be permitted to exit such a structure if they do not have other group entities under their fold.
“RBI may take steps to ensure harmonization and uniformity of different licensing guidelines, where possible. Whenever new licensing guidelines are released, if new rules are more eased, the advantage should be given to existing banks, and if the new rules are stricter, old banks must also comply with new stricter regulations, but a non-disruptive transition path can be offered to the affected banks,” concludes the press release.
The IWG report is posted on the RBI website on Friday for comment from stakeholders and members of the public. Comments on the report can be submitted before January 15, 2021, by email. RBI will consider comments and suggestions before making a decision on the matter. (ANI)

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