RBI committee suggests permitting company to take vital financial institution stakes

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NOFHC should continue to be the preferred structure for all new licenses to be issued for universal banks, RBI panel suggested (REUTERS)


An inner committee of Reserve Financial institution of India prompt giving banking licences to giant company or industrial homes after needed amendments to the Banking Regulation Act, 1949. On eligibility of promoters, it stated giant company/industrial homes could also be allowed as promoters of banks solely after needed amendments to the Banking Rules Act, 1949 to take care of related lending and exposures between the banks and different monetary and non-financial group entities.

“Massive company/industrial homes could also be allowed as promoters of banks solely after needed amendments to the Banking Regulation Act, 1949 (to stop related lending and exposures between the banks and different monetary and non-financial group entities); and strengthening of the supervisory mechanism for big conglomerates, together with consolidated supervision,” the RBI committee prompt.

The committee was fashioned by the banking regulator in June to evaluation extant possession pointers and company construction for Indian personal sector banks. The group additionally proposed to lift the cap on promoters’ stake in personal banks from the present 15% to 26% in 15 years.

Commenting on the advice, Rajeev Vidhani, Accomplice, Khaitan & Co, stated, “As soon as translated into needed amendments, this can result in a major shift within the possession construction of personal sector banks, by permitting new class of promoters and elevating cap on long run promoter shareholdings, that are presently restricted to solely 15%.”

“This after all, as prompt would require introduction of a strong supervisory mechanism for big conglomerates. What can be related it that this open doorways for big NBFCs to be transformed into banks, however what is going to observe alongside is stricter regulatory monitoring,” he added.

Non-operative Monetary Holding Firm (NOFHC) ought to proceed to be the popular construction for all new licenses to be issued for common banks, the committee prompt. “Nonetheless, it must be obligatory solely in instances the place the person promoters/selling entities/ changing entities produce other group entities,” it added.

Banks presently below NOFHC construction could also be allowed to exit from such a construction if they don’t have different group entities of their fold. Whereas banks licensed earlier than 2013 might transfer to an NOFHC construction at their discretion, as soon as the NOFHC construction attains a tax-neutral standing. These banks then ought to transfer to the NOFHC construction inside 5 years from announcement of tax-neutrality.

Reserve Financial institution might take steps to make sure harmonisation and uniformity in several licensing pointers, to the extent attainable. At any time when new licensing pointers are issued, if new guidelines are extra relaxed, profit must be given to current banks, the report talked about.

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