Tags:
Journalism of Courage
The new year will witness big-ticket announcements in the banking sector, bringing about more consolidation, changes in promoter holding and even mergers and acquisitions. The road map for the banking sector — expected in the coming days — is likely to contain bold measures to allow foreign direct investment (FDI) up to 74 per cent stake in private banks.
Dalal Street has already noticed the proposed plans. The BSE Bankex — the index showing the movement of bank shares — has jumped 12.8 per cent in a month to 3721.97 by December 31.
Finance Minister P. Chidambaram has gone on record saying that further opening up of Indian private banks to FDI was “pretty close” and will be done in the next few days.
The regulatory conditions would be made clear in the road map. The road map was being contemplated as many of the Indian private sector banks were “too weak to survive”, he said.
The foreign banks will be asked to spell out their plans whether they want to operate through branches, acquire a private bank or opt for a subsidiary. However, these three options are unlikely to be allowed for the foreign banks.
The Reserve Bank of India (RBI) is planning to come out with the second set of draft norms on ownership pattern in private banks shortly. “This is keenly awaited by bankers. We hope the RBI will dilute the stringent measures it proposed earlier,” said a banking source who preferred anonymity.
It had come out with first draft guidelines on ownership in private banks in order to widen the shareholding base in July.
RBI proposed that no single entity or a group can hold more than 10 per cent of the paid-up capital in a private Indian bank. It has also capped the holding of one private bank, including foreign ones present in India, in another private bank at 5 per cent, besides asking promoters to reduce their holding to 10 per cent in three years.
However, a section of the government is against the first RBI draft guidelines. The restriction proposed by RBI has been viewed by a section of investors as being incongruous with the FDI policy for the sector. The Finance Ministry is also of the view that if an investor bank has sufficient diversified holding, it should be allowed to automatically acquire more than 5 per cent stake in another private bank.
If banks were to follow the first draft guidelines, a number of private banks would have to realign their shareholding pattern. Among the banks that would be immediately impacted by the move include ING Vysya Bank, UTI Bank, Yes Bank, Centurion Bank, Kotak Bank and HDFC Bank. Even ICICI Bank would have to lower its holding in Federal Bank and South Indian Bank. “The RBI norms should jell with the FDI policy of the government,” banking sources said.
There was also a proposal to remove the 10 per cent voting cap in banks. As of now, voting rights of promoters or big stakeholders are restricted to 10 per cent irrespective of their holding. However, if banking sources are to be believed, the ministry apparently developed cold feet over the proposal fearing a political storm.
Besides, the government is encouraging mergers and acquisitions in the banking sector. It has not ruled out merger among PSU banks. In fact, speculation is rife that Union Bank of India is likely to merge with Bank of India. Also, a host of banks are planning to tap the capital market in the coming months.
What’s cooking for banks?
• Road map for FDI up to 74 pc in private banks
• RBI’s second draft norms on ownership
• Mergers among public sector banks
• But voting rights cap may remain
