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RBI sets up 5-member Internal working group headed by P K Mohanty to review ownership and control of Private banks

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RBI sets up panel to review corporate structureOn June 12, 2020, India’s central bank, the Reserve Bank of India (RBI) has set up a 5-member internal working group (IWG) headed by its Central Board Director Prasanna Kumar (PK) Mohanty to review ownership guidelines and corporate structure for private banks in light of recent developments in the banking sector. The committee is due to submit its report by 30th September 2020.

The other 4 member of the Working Group is as follows:

Prof. Sachin Chaturvedi (Director Central Board of RBI), Smt. Lily Vadera (Executive Director of RBI), Shri S. C. Murmu (Executive Director of RBI) and Shri Shrimohan Yadav (Chief General Manager of RBI – Convenor).

Terms of Reference (ToR) of the Committee:

  • The RBI has asked the panel to review the guidelines and licensing regulations regarding ownership, promoters’ holding, requirement of dilution, control and voting rights in private banks.
  • In addition, the group will examine and review the eligibility criteria for individuals or entities which/who apply for a banking license.
  • Similarly, after issuance of the license at the initial/licensing stage, the Panel will look into the existing provisions relating to the promoter’s shares and make appropriate recommendations.
  • The IWG will also examine the present regulations on holding of financial subsidiaries through a non-operative financial holding company (NOFHC) and suggest solutions of migrating all banks to a uniform regulation.

Background:

  • The review of promoter’s stake in private sector banks is significant as the promoters of Kotak Mahindra Bank had a stake in the out-of-court settlement between the RBI and the bank. The RBI limited the voting rights to 15 %, allowing promoters to hold a 26 % stake in Kotak Bank.
  • The current rules stipulate that the promoter’s share will be reduced to 40% for the three years after the bank commences operations, to 10% for 10 years and 15% for 15 years.  IndusInd Bank promoters Hinduja Brothers have applied to RBI to allow them to increase their stake in Kotak Bank by 26 %.

About Reserve Bank of India (RBI):
Formation– 1 April 1935
Headquarters– Mumbai, Maharashtra
Governor– Shaktikanta Das
Deputy Governors– 4 (Bibhu Prasad Kanungo, Mahesh Kumar Jain, Michael Debabrata Patra, one is yet to be appointed).