The Reserve Bank of India RBI has not yet accepted a recommendation to allow industrial houses to float banks in the country and has kept the non-promoter shareholding capped at 10 per cent for individuals or non-financial institutions.
The internal working group, constituted on June 12 last year under the chairmanship of Prasanna Kumar Mohanty, director of the central board of RBI, suggested in its November 20 report that large corporate or industrial houses should be allowed in banking after necessary amendments to the Banking Regulations Act.
The RBI said on Friday that they must operate for at least five years before applying to become banks SFB, which is not compatible with the group's recommendation of three years of operations as sufficient to graduate into an SFB.
The central bank did not mention the industrial house recommendation when it made its final decision on the ownership guidelines and corporate structure for Indian private sector banks. The accepted 21, partially modifying many of the 33 sets of recommendations by the working group. The central bank said that the rest of the recommendations are under examination. The panel recommended that there was no need to fix a cap on promoters' holding in initial five years, post which it has to be 40%.
One important decision accepted by the central bank was to increase the cap on promoters' stakes in the long run of 15 years to 26 per cent, from the current levels of 15 per cent.
The recommendations said that the stipulation should be uniform for all types of promoters, and would not mean that promoters who have already diluted their holdings to less than 26 per cent will not be allowed to raise their holdings to 26 per cent of the paid-up voting equity share capital of the bank.
The RBI has also said that the non-promoter shareholding should be raised to 15 per cent for all types of non-promoter shareholders.
The central bank said that non-promoter shareholding will be allowed at 10 per cent of the share capital in case of natural persons and non-financial institutions, but it will be allowed to have 15 per cent of the equity share capital of a bank in case of all financial institutions, supranational institutions, public sector undertaking or government.
The central bank also clarified that there were instructions on the requirement for prior approval of the RBI to acquire shareholding or voting rights of five per cent or more.
The recommendations of the working group, particularly giving licenses to industrial houses, had created a huge uproar with former RBI governors criticising the suggestions and questioning the need for a committee at that point.
Former RBI Governor Raghuram Rajan and deputy governor Viral Acharya have criticised the IWG recommendation of the central bank.
How can we override all the cautions on allowing industrial houses into banking? We would argue no. Today it is even more important to stick to the tried and tested limits on corporate involvement in banking, said Rajan and Acharya s joint statement released in November last year on Rajan's LinkedIn handle.