Reserve Bank of India (RBI), on Friday, released a report on Extant Ownership Guidelines for Indian private sector banks, which was prepared by an Internal Working Group (IWG) appointed by the central bank.
India's Central Bank has suggested large non-banking financial companies (NBFCs) including corporates with asset size above 6.7 billion US dollars to convert into banks subject to certain conditions in a discussion paper released on Friday.
The panel has also suggested that well run NBFCs can be considered for conversion into banks if they have operated for 10 years and meet due diligence criteria. For non-promoter shareholding, the current long-run shareholding guidelines may be replaced by a simple cap of 15% of the paid-up voting equity share capital of the bank, the committee said.
Earlier this month, M Rajeshwar Rao, deputy governor of RBI had said that NBFCs of a certain size should be converted into banks and be subject to the same regulatory framework. Banks now under NOFHC may be allowed to exit from such a structure if they do not have other group entities in their fold.
In another update, the panel also suggested raising the cap on the stake of private bank promoters to 26 per cent from the current 15 per cent in the long run (15 years).
The move has a direct implication on promoter holding of Kotak Mahindra Bank and IndusInd Bank, where promoter holding has been a contentious issue.
The proposals could also allow large non-banking finance companies and niche payment banks to convert into lenders.
Also, nearly all the experts were of the view that the present prescription of listing within six years from commencement of operations, for universal bank in the "on-tap" licensing guidelines can be followed uniformly including small finance banks, which had been given only three years from reaching networth of Rs 500 crore, the report noted. While banks licensed before 2013 may move to an NOFHC structure at their discretion, once the NOFHC structure attains a tax-neutral status. In the past several of the large corporate houses in India had applied for banking license but had either backed out or were denied by RBI.
The committee suggested doubling the minimum starting capital for universal bank license from Rs 500 crore to Rs 1,000 crore.
The RBI has sought comments of stakeholders and members of the public, to be submitted by January 15.
In 2013-14, the RBI invited applications for new private banks. "Whenever new licensing guidelines are issued, if new rules are more relaxed, the benefit should be given to existing banks, and if new rules are tougher, legacy banks should also conform to new tighter regulations, but a non-disruptive transition path may be provided to affected banks", the statement concluded. And for urban cooperative banks transiting to SFBs, the initial paid-up capital or net worth should be Rs 150 crore which has to be increased to Rs 300 crore in five years.