RBI sets up panel to review ownership, corporate structure at private banks

The Reserve Bank of India (RBI) has decided to review policy pertaining to ownership and control in Indian private sector lenders "to harmonise the norms applicable to banks set up at different time periods, irrespective of their date of commencement of business". The central bank on Friday said it has constituted a five-member Internal Working Group (IWG), headed by RBI Central Board Director P K Mohanty, to review the extant guidelines on ownership and corporate structure for Indian private sector banks.

The move is significant as it comes in the wake of the out-of-court settlement between RBI and Kotak Mahindra Bank earlier this year. The central bank has allowed the promoter of Kotak Mahindra Bank to limit stake at 26 per cent with voting right ceiling of 15 per cent, PTI quoted sources as saying.

Under the current RBI rules, private sector bank promoters are required to dilute their shareholding to 40 per cent within three years, 20 per cent within 10 years and 15 per cent within 15 years of starting operations.

The RBI panel will examine and review the extant licensing and regulatory guidelines relating to ownership and control, promoters' holding, requirement of dilution, control and voting rights, etc. It will submit its report by September 30, 2020.

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Besides Mohanty, the internal working group comprises Sachin Chaturvedi, director, RBI Central Board, and executive directors Lily Vadera and SC Murmu. Chief General Manager Shrimohan Yadav has been named convenor of the panel.

"The group will review the extant licensing guidelines and regulations relating to ownership and control in Indian private sector banks and suggest appropriate norms, keeping in mind the issue of excessive concentration of ownership and control, and having regard to international practices as well as domestic requirements," RBI said.

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The panel has been asked to examine and review the eligibility criteria for individuals or entities to apply for banking license and make recommendations on all related issues. It will study the current regulations on holding of financial subsidiaries through non-operative financial holding company (NOFHC) and suggest the manner of migrating all banks to a uniform regulation in the matter, including providing a transition path, the central bank said.

The group will also review the norms for promoter shareholding at the initial or licensing stage and subsequently, along with the timelines for dilution of the shareholding, identify any other issue relevant to the subject matter and make recommendations thereon.

The RBI said as macroeconomic indicators, financial market and technological developments continue to influence the future of banking and transform how the entire banking industry operates, it is felt necessary to align regulations to meet the requirements of a dynamic banking landscape.

The central bank has already issued the guidelines for on-tap licensing of universal banks as well as small finance banks in order to leverage these developments for engendering competition through entry of new players. Also, the broad policy relating to ownership and control in Indian private sector banks is guided by the framework issued in February 2005.

It further stated that though the overarching principle, mandating ownership and control of private sector banks remains well diversified and major shareholders are ''fit and proper'', remains unchanged, the specific contours have evolved over the years with specific prescriptions being given as part of licensing guidelines issued at various points in the past.