RBI releases panel report on ownership, governance norms of private banks

Today, RBI released a report on the Internal Working Group (IWG) recommendations on private bank ownership and corporate structure which suggested that large Non-Banking Financial Company (NBFCs) can convert into banks if they fulfil certain criteria.

On June 12, 2020, Reserve Bank Of India (RBI) constituted an IWG to review extant ownership guidelines and corporate structure for Indian private sector banks.

“Well run large NBFCs, with an asset size of 50,000 crore and above, including those which are owned by a corporate house, may be considered for conversion into banks subject to completion of 10 years of operations and meeting due diligence criteria and compliance with additional conditions specified in this regard,” the central bank panel recommended.

Payment banks having three years of experience will be eligible for conversion to a small finance bank, it further stated.

The internal working group said, “Small finance banks and payments banks may be listed within ‘6 years from the date of reaching net worth equivalent to prevalent entry capital requirement prescribed for universal banks’ or ‘10 years from the date of commencement of operations’, whichever is earlier.”

The minimum initial capital requirement for licensing new banks should be enhanced from 500 crore to 1000 crore for universal banks. For small finance banks, it should be increased from 200 crore to 300 crore.

“Large corporate/industrial houses may be allowed as promoters of banks only after necessary amendments to the Banking Regulation Act, 1949 (to prevent connected lending and exposures between the banks and other financial and non-financial group entities); and strengthening of the supervisory mechanism for large conglomerates, including consolidated supervision,” the RBI panel suggested.

The internal working group members are Dr Prasanna Kumar Mohanty, Director, Central Board of RBI, Professor Sachin Chaturvedi, Director Central Board of RBI, Smt. Lily Vadera, Executive Director, RBI, Shri S.C. Murmu, Executive Director, RBI and Shri Shrimohan Yadav, Chief General Manager, RBI.

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