RBI changes ownership and corporate structure standards for private banks

  • The RBI accepted 21 of 33 recommendations submitted by a central bank task force on the ownership and business structure of private sector banks.
  • Among other recommendations, the ceiling for promoters holding a long term of 15 years should be raised to 26% from 15%.
  • Small financing banks must now be on the list within eight years of the start of operations.

IndusInd Bank could benefit from the RBI’s latest change in ownership standards as developer Hinduja Group may finally be able to increase its stake in the bank.

It comes after the Reserve Bank of India (RBI) brought in new guidelines on ownership and corporate structure standards for private sector banks. The central bank accepted 21 of 33 recommendations submitted by a central bank task force.

Among other changes, it raised the limit for promoters’ participation from 15% to 26% of the bank’s paid-up share capital with voting rights.

“This decision will certainly allow developers to increase their stake in the bank to 26% against 15% currently, which is positive. The only question is whether they will really increase their participation, as the stock has corrected too much in recent years and I am not very sure about Hinduja’s financial situation at the moment, ”said Nitin Aggarwal, analyst. research at Motilal Oswal.

In addition, the RBI may introduce a reporting mechanism for the pledging of shares by promoters of private sector banks.

In addition to this, RBI can create an oversight mechanism to ensure that control of the bank’s sponsor / major shareholder entity does not fall into the hands of people who are not deemed fit and appropriate.

Here are some important changes accepted by RBI based on recommendations made by the internal working group:

Changes in Ownership and Business Structure for Indian Private Sector Banks
Ceiling on the promoter’s holding increased to 26% compared to 15% currently
Non-promoter shareholding will be capped at 10%
Participation of individuals and non-financial institutions / entities capped at 15%
Small financial banks will now be listed within eight years of starting operations
Universal banks will be listed within six years of their operations
RBI to Introduce Reporting Mechanism for Pledging of Shares by Promoters of Private Sector Banks
Net worth required to set up a new universal bank increased to ₹ 1000 crore from current ₹ 500 crore
The net worth required to start a new small financing bank has increased to 300 crore from the current 200 crore

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