RBI allows promoters to hold 49% in pvt banks

The other licensing conditions for entry of new banks and those stipulated for foreign direct investment (FDI) will remain the same, the RBI said. This is on similar lines of RBI’s February 2002 clarification that FDI upto 49 per cent from all sources was permitted in private sector banks under the automatic route subject to the conformity with the guidelines issued from time to time.

Private banks had been making the point that while the new FDI norms in the banking sector allow a foreign player to hold as much as 49 per cent (though voting rights continue to be limited to 10 per cent), the holding level for Indian promoters of private banks continued to be limited at a maximum of 40 per cent.

This, the banks had argued, went against the concept of a level playing field as the foreign players clearly stand to benefit from a higher holding level.

RBI had set a deadline of March 31, 2002, for private bank promoters to bring down their stake to the existing limit of 40 per cent. But most banks had not been able to adhere to this deadline owing to sluggish stockmarkets.

Some bank promoters may have even been contemplating waiting a while and striking a block deal with a foreign bank desirous of making an entry into India through the FDI route. According to the RBI’s guidelines as on January 3, 2001, new private sector banks’ promoters contribution for setting up a new bank was restricted to 40 per cent of the paid up capital of the bank.

In case the initial contribution was in excess of the minimum proportion of 40 per cent, promoters were required to dilute their excess stake after one year of the bank’s operation.