The Reserve Bank of India RBI has accepted 21 of 33 of the 33 recommendations of the internal working group to review extant ownership guidelines and corporate structure for Indian private sector banks. The IWG had submitted its recommendations on extant ownership guidelines and corporate structure for private sector banks.
After accepting these notifications, the RBI has notified a lock-in period for promoters' initial shareholding, limits on shareholding in the long run, and dilution requirements and voting rights.
No change can be required in the extant instructions related to initial lock-in requirements, which can be a minimum of 40 per cent of the paid-up equity share capital of the bank for the first five years.
There isn't a need to fix a cap on the promoters' holding in the initial five years.
The cap on promoters' stake for 15 years may be raised from current levels of 15 per cent to 26 per cent of the paid-up equity share capital of the bank. It should be uniform for all types of promoters and not mean that promoters who have already diluted their holdings to below 26 per cent will not be allowed to raise it to 26 per cent of the paid-up voting equity share capital of the bank. If the promoter wants to bring down holding to even below 26 per cent, he or she can do it any time after the lock-in period of five years.
There are no intermediate sub-targets between 5 -- 15 years. At the time of the issue of licences, the promoters may submit a dilution schedule that may be approved and examined by the RBI. The progress in achieving agreed milestones must be periodically reported by the banks and monitored by the RBI. The submission of a dilution schedule will be mandatory, the said.
The non-promoter shareholding will be limited to 10 per cent of the paid-up voting equity share capital of the bank in case of natural persons and non-financial institutions or entities, and 15 per cent of the paid-up equity share capital of the bank in case of all financial institutions or entities, supranational institutions, public sector undertaking or government.
A monitoring mechanism can be devised to make sure that the control of the promoting entity or major shareholder of the bank does not fall into the hands of persons who are not found to be fit and proper. When a shareholder becomes a significant beneficial owner, reporting requirements may be required, as defined by the Companies Act, 2013 of the promoting entity or major shareholder of the bank.
The internal working group recommends that the pledge of shares by promoters be disallowed during the lock-in period, because it amounts to bringing the unencumbered promoters' shares below the prescribed minimum threshold.