RBI puts corporate entry in banking sector on hold despite strong push by Centre

However,  the RBI accepted the recommendation to allow raising the cap on promoters' stakes in long run of 15 years to 26 per cent.

Published: 27th November 2021 11:05 AM  |   Last Updated: 27th November 2021 11:05 AM   |  A+A-


Reserve Bank of India (Photo | PTI)

By Express News Service

NEW DELHI:  Despite strong push by the north block, the Reserve Bank of India (RBI) has not accepted a recommendation to allow industrial houses to float banks in the country, following the line of former RBI governor Raghuram Rajan and deputy governor Viral Acharya, who had sharply opposed the entry of large corporates into banking, at least for the time being.

The central bank on Friday said it has accepted 21 out of the 33 recommendations submitted by a central bank working group on ownership and corporate structure for Indian private sector banks.

However,  the RBI accepted the recommendation to allow raising the cap on promoters' stakes in long run of 15 years to 26 per cent, from the current levels of 15 per cent, giving relief to private bankers like Uday Kotak.

Last year, the RBI had allowed Uday Kotak to keep an equity stake of 26 per cent in the bank, and not 15 per cent as mandated for other promoters of private banks, making an exception for him. The central bank decided it kept the non-promoter shareholding capped at 10 per cent for individuals or non-financial institutions.

The cap will be at 15 per cent in case of all categories of financial institutions or entities, supranational institutions, public sector undertaking or government, the RBI said. The central bank also clarified that the extant instructions on the requirement of prior approval of the RBI to acquire shareholding or voting rights of 5 per cent or more will continue.

The RBI, on Friday, also said payments banks must operate for at least five years before applying to become small finance banks (SFB), going against the group’s recommendation of three years of operations.

Also, the RBI accepted the proposal that there is no need to fix any cap on the promoters’ holding in the initial five years. The central bank has accepted the recommendation to tighten the rules controlling huge NBFCs, making them as strict as the banking laws. The regulator also accepted proposals that allowed for an increase in the minimum initial capital requirement for licensing of new banks. 

Recommendations: What's approved?

  • Out of the 33 sets of recommendations by the working group, the RBI accepted 21, many with modification

  • Accepts raising the cap on promoters’ stakes to 26 per cent from the current 15 per cent

  • Puts on hold the entry of corporate into banking

  • Tightens the rules governing big NBFCs to be as stringent as it is for banks

  • RBI said payments banks must operate for at least 5 years to become small finance banks, against recommendation of three years

  • Rejects non-promoter shareholding should be raised to 15% for all non-promoter shareholders


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