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RBI accepts most of panel proposals, silent on corporate foray into banking

The central bank has opted neither to accept nor reject the proposal of an Internal Working Group (IWG) of the RBI that large corporate houses should be allowed as promoters of banks “only after necessary amendments” to the Banking Regulations Act, 1949.

By: ENS Economic Bureau | Mumbai |
November 27, 2021 4:26:22 am
The RBI, which accepted 21 out of 33 recommendations of the IWG, did not comment on the issue of granting banking licence to big corporate houses.

The Reserve Bank of India (RBI) has maintained status quo on the issue of corporate entry into the banking space. The central bank has opted neither to accept nor reject the proposal of an Internal Working Group (IWG) of the RBI that large corporate houses should be allowed as promoters of banks “only after necessary amendments” to the Banking Regulations Act, 1949.

The RBI, which accepted 21 out of 33 recommendations of the IWG, did not comment on the issue of granting banking licence to big corporate houses.

The IWG said this (amendment to facilitate corporate entry) is to deal with 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.

In its report on the ‘Ownership Guidelines and Corporate Structure for Indian Private Sector Banks’, released in November 2020, IWG has proposed that “the RBI may examine the necessary legal provisions that may be required to deal with all concerns” on the issue of granting licence to big corporate houses.

“The minimum requirement on track record of experience of promoting entity, including for a converting NBFC, may continue at 10 years for universal banks and 5 years for small finance banks,” the RBI said. IWG said well-run large NBFCs, with an asset size of Rs 50,000 crore and above, including those which are owned by a corporate house, may be considered for conversion into banks provided they have completed 10 years of operations and meet the due diligence criteria and satisfy the additional conditions specified in this regard. The RBI accepted the proposal that it may consider putting in place a tighter, bank-like regulatory framework for large NBFCs.

While the RBI has decided to accept 21 recommendations (some with partial modifications, the remaining recommendations are under examination, the RBI said. The RBI also accepted the recommendation that the cap on promoters’ stake in long run of 15 years should 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. It said small finance banks should be listed within eight years from the date of commencement of operations.

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