RBI’S NEW NORMS FOR PRIVATE BANKS- HIGHLIGHTS
Highlights
- Under the new norms, RBI has accepted the suggestion to increase cap on stake of promoters in banks from 15 percent to 26 percent.
- However, it is still examining if industrial houses should be allowed to run banks in accordance with the recommendations of an internal working group (IWG).
- In all, RBI accepted 21 out of 33 recommendations of the IWG.
Internal Working Group (IWG)
- IWG is headed by the director of central board of the RBI, Prasanna Kumar Mohanty. This group was set up on June 12, 2021.
- It suggested in its report, published on November 20, that large corporate or industrial houses should be allowed in banking following the amendments to the Banking Regulation Act.
- This recommendation created an uproar among former governors and deputy governors of RBI.
- RBI did not accept this suggestion.
RBI’s call on recommendations
- Central bank said that, non-promoter shareholding cap for an individual or non-financial institution should be 10 per cent as opposed to what suggested by IWG to keep it 15 per cent for all kinds of non-promoter shareholders.
- However, RBI allowed the financial institutions, public sector undertakings (PSUs), supranational institutions, or government to hold 15 per cent in private banks.
- As per RBI’s earlier rules, non-promoter shareholding could increase to 40 per cent for well diversified, regulated, and listed financial institutions, PSUs, supranational institutions, or government.
- RBI accepted the suggestions on a “reporting mechanism” to pledge shares by promoters.
- It rejected the recommendation to allow payments banks to convert themselves into small finance banks having three years’ experience.
- It accepted IWG’s recommendation that banks should have higher initial capital of at least Rs 1,000 crore.