The Reserve Bank proposed on Friday to review guidelines on ownership, governance and corporate structure of private sector banks in the context of key developments in the space in recent years.
The five-member internal task force to review the guidelines will be led by RBI Central Council Director PK Mohanty, the central bank said in a statement.
The committee will submit its report no later than September 30, 2020.
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“The review would provide an opportunity to harmonize the standards applicable to banks established in different periods, regardless of when they started operating,” RBI said.
The panel was invited to review the current licensing guidelines and regulations relating to the ownership and control of Indian private sector banks and to suggest appropriate standards, bearing in mind the issue of excessive concentration of ownership and control, as well as international practices and national requirements.
It will also review and revise the “Standards for sponsor shareholding at initial/licensing stage and thereafter, as well as shareholding dilution timelines; and identify any other issues related to the subject and to make recommendations in this regard”.
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Existing RBI rules state that the sponsor of a private bank will have to reduce its stake to 40% within three years, 20% within 10 years and 15% within 15 years.
The same was true for Bandhan Bank and IDFC Bank which obtained approval in principle in 2014.
RBI said that as macroeconomic, financial market and technology developments continue to influence the future of the banking industry and transform the way the entire industry operates, there is a need to align regulations to meet the demands of a dynamic banking landscape.
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RBI has already released the guidelines for on-demand licensing to universal banks as well as smaller financial banks to leverage these developments to engender competition through the entry of new players.
In addition, the general policy on ownership and control of Indian private sector banks is guided by the framework issued in February 2005.
He further stated that while the fundamental principle that the ownership and control of private sector banks should be well diversified and that major shareholders should be “fit and proper” remains unchanged, the specific contours have evolved over the years. , with specific requirements given in licensing guidelines issued at various times in the past.
“It is therefore deemed necessary to review in a compressive manner the existing guidelines on ownership, governance and corporate structure.
in private sector banking, taking into account the main developments over the years that have a bearing on the issue,” he said.
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In addition to Mohanty, the internal task force includes Sachin Chaturvedi, Director, RBI Central Board; and Lily Vadera and SC Murmu, both executive directors. Chief Managing Director Shrimohan Yadav was appointed as the moderator of the panel.
The panel was also requested to review and revise the eligibility criteria for individuals/entities to apply for a banking license and make recommendations on all related matters.
In addition, it will study the current regulations on holding financial subsidiaries through a non-operating financial holding company (NOFHC) and propose how to migrate all banks to uniform regulations in this area, including by providing a transition path.