RBI Disallows Corporate Entry Into Banking, Allows Higher Promoter Stake

Of the 33 sets of recommendations by the internal working group, the central bank has accepted 21 with certain modifications

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Mumbai: Putting an end to Tatas’, Birlas’, and Reliance’s plan to expand their business empires into banking, the Reserve Bank of India (RBI) has kept in abeyance the entry of industrial houses into full-fledged commercial banking.

While the RBI did not expressly state that the plan for industrial houses to own banks had been met with opposition from former central bankers to politicians, but the central bank did say that the other 12 recommendations were being considered.

The central bank has accepted 21 out of the 33 recommendations made by the internal working group with certain modifications, thus increasing the minimum capital requirement to Rs 1,000 crore and allowed promoters to possess up to 26 per cent of the company, permitting Uday Kotak to keep control of his bank. 

The RBI said this criterion should apply to all sorts of promoters. It does not mean that promoters who have previously diluted their shares to below 26 per cent would not be allowed to increase their holdings to 26 per cent of the bank’s paid-up voting equity share capital.
Large non-banking finance companies (NBFCs) operated by industrial houses such as Tata and Birla face a double whammy. The central bank has announced it will tighten the rules controlling huge NBFCs to be as strict as the banks’ laws. In three years, the plan to allow payment banks to convert to small finance banks was rejected, delaying Paytm’s foray into lending and other banking services.
“After examining the comments and suggestions received from the stakeholders and members of the public, it has been decided to accept 21 recommendations, the remaining recommendations are under examination,” the RBI said in a statement.

“The cap on promoters’ stake in the long run of 15 years may be raised from the current levels of 15 per cent to 26 per cent of the paid-up voting equity share capital of the bank,” the RBI said.

The central bank on November 20 had released the report on the internal working group’s recommendations on private bank ownership and corporate structure.