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RBI panel for allowing corporates to promote banks

Published : Monday, 23 November, 2020 at 12:00 AM  Count : 122

MUMBAI, Nov 22: An internal Reserve Bank of India (RBI) panel has proposed that large corporates may be permitted to promote banks after necessary amendments to the Banking Regulations Act, as well as raising the cap on promoters' stake in private sector banks to 26 per cent.
The panel also suggested the conversion of big non-banking finance companies (NBFCs) into banks.
The RBI had constituted an Internal Working Group (IWG) on June 12, 2020, to review extant ownership guidelines and corporate structure for Indian private sector banks. The central bank made the report public on Friday and has sought comments by January 15, 2021 "before taking a view in the matter".
The group has recommended that "large corporate/industrial houses may be permitted to promote banks only after necessary amendments to the Banking Regulations Act, 1949 to deal with connected lending and exposures between the banks and other financial and non-financial group entities". It also made a case for the strengthening of the supervisory mechanism for large conglomerates, including consolidated supervision.
The approach of the RBI regarding ownership of banks by large corporate/ industrial houses has, by and large, been a cautious one in view of serious risks, governance concerns and conflicts of interest that could arise when banks are owned and controlled by them.
For the first time in 2013 the RBI, in its Guidelines for Licensing of New Banks in the Private Sector had prescribed several structural requirements of promoting a bank under a non-operative financial holding company (NOFHC).
Further, well run large NBFCs with an asset size of Rs 50,000 crore and above, including those owned by a corporate house, may be considered for conversion into banks - subject to completion of 10 years of operations and meeting due diligence criteria and compliance with additional conditions specified in this regard, it suggested.    —PTI

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