On ownership and corporate structure of private sector banks reserve Bank Accepting most of its working group’s recommendations on corporate ownership of private sector banks, on Friday approved promoters’ shareholding without any limit in the first five years of operation and then to 26 per cent after 15 years of operation. gave permission. The Reserve Bank also gave approval regarding new capital requirements. The move will benefit major banks like Kotak Mahindra Bank and IndusInd Bank, which have been seeking more time from the regulator to sell their stake for several years.
The central bank accepted 21 of the 33 recommendations of the Internal Working Group and said the remaining suggestions were being considered. The Reserve Bank constituted a working group on June 12, 2020, and the committee submitted its report on November 20, 2020. In this, comments of stakeholders and members of the public were sought by January 15, 2021. The central bank accepted the committee’s recommendation that there should be no change in the existing instructions relating to the initial lock-in requirement of holding a minimum of 40 per cent of the bank’s paid-up voting equity share capital for the first five years, but said that There will be no limit on promoters’ shareholding during this period. The committee’s report advocates maintaining a minimum 40 per cent stake for the first five years to ensure that the promoters retain a significant stake in the banks and the credibility of the promoter group’s control until the business is properly established and stable. This will also ensure that the promoter remains committed to providing the necessary strategic direction to the bank in the initial years.
Another important change is that the promoters will have to bring in more money to start the bank as the Reserve Bank has accepted all the recommendations on the minimum initial capital requirement for licensing new banks. The Reserve Bank has accepted the recommendations related to initial capital requirements, saying that the initial paid-up voting equity share capital/total assets required for a new bank for banks engaged in diversified banking activities, to be increased over five years from the current Rs 500 crore to Rs 1,000. crores can be made. Similarly, for Small Finance Banks (SFBs), it can be increased from the existing Rs 200 crore to Rs 300 crore, for Urban Co-operative Banks (UCBs) taking the form of SFB from the current Rs 100 crore to Rs 150 crore.
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