The Reserve Bank of India (RBI) has accepted 21 out of 33 recommendations of the Internal Working Group (IWG) that was set up by RBI to review extant ownership guidelines and corporate structure of Indian private sector banks.
- RBI has accepted the IWG’s suggestion to increase the limit on promoters’ paid-up voting equity share capital of the bank to 26 percent from the current 15 percent.
i.On June 12, 2020, RBI has set up a 5-member IWG headed by Central Board Director of RBI, Prasanna Kumar (PK) Mohanty.
ii.The IWG had made a total of 33 recommendations. The report of the IWG was placed on the RBI website on November 20, 2020, inviting comments of stakeholders and members of the public by January 15, 2021.
iii.After examining the comments and suggestions received from the stakeholders and members of the public, RBI has accepted 21 recommendations and the remaining recommendations are under examination.
Key Recommendations accepted by RBI:
i.No changes are made in the initial lock-in requirements, which may continue as a minimum of 40 percent of the paid-up voting equity share capital of the bank for the first 5 years.
ii.There is no need to fix any cap on the promoters’ holding in the initial 5 years.
iii.The promoters are allowed to choose to bring down the holding to below 26 percent, any time after the 5 year lock-in period.
iv.Recommendations on Enhanced minimum initial capital requirement for licensing new banks:
- The initial paid-up voting equity share capital/ net worth required to set up a new universal bank, may be increased to ₹1000 crore (from present ₹500 crore).For SFBs: The initial paid-up voting equity share capital/ net worth required to set up a new SFB, may be increased to ₹300 crore (from present ₹200 crore).For UCBs transiting to SFBs: The initial paid-up voting equity share capital/ net worth should be ₹150 crore (from present ₹100 crore) which has to be increased to ₹300 crore in five years (from present ₹200 crore).
v.Banks that are currently under the Non-operative Financial Holding Company (NOHFC) structure will be now allowed to exit if they do not have other group entities in their fold.
vi.Non-promoter shareholding was capped at 10 percent in the case of non-financial institutions and at 15 percent in the case of financial institutions or government entities. Earlier, a uniform cap of 10 percent was allowed through the norms.
vii.RBI has discarded the recommendation of allowing Payments Bank (PB) that are intending to convert into a SFBs, to track a record of 3 years of experience as PB. RBI continues to retain the 5-year conversion cap for payments banks wishing to be an SFB.
- The minimum requirement on the track record of experience for converting an NBFC (Non-Banking Finance Company) continues at 10 years for Universal Banks and 5 years for SFBs.
viii.RBI stated the SFBs should be listed within 8 years from the date of commencement of operations, as against 10 years suggested by the IWG.
- Universal banks are allowed to continue to be listed within 6 years of commencement of operations. Click here to know more
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About Reserve Bank of India (RBI):
Establishment – April 1, 1935
Headquarters – Mumbai, Maharashtra
Governor – Shaktikanta Das
Deputy Governors – Mahesh Kumar Jain, Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar