Recently the Reserve Bank of India (RBI) has accepted the recommendation of the Internal Working Group (IWG) to increase the limit of promoters’ stake in private sector banks.
The Internal Working Group (IWG) was formed in the year 2020 to review the existing ownership guidelines and corporate structure for Indian private sector banks.
Key recommendations accepted by RBI
- Increase in promoter shareholding limit from existing 15% to 26%.
- Thus, the promoters will be more committed towards private sector banks. This will give more stability to the private sector banks. This will provide more convenience to the deposit holders.
- Promoters may, at their discretion, choose to reduce the shareholding to less than 26% after the lock-in period of five years.
- Small Finance Banks (SFBs) should be listed within 8 years of commencement of operations.
- The conversion time for universal banks to NBFCs and SFBs will be 10 years.
- However, RBI is yet to take any decision on IWG’s recommendations to allow large corporates/industrial houses to float banks.
Potential benefits of Licensing Corporates: Help in capitalisation, Expansion of Indian banking industry globally, Increased competition, 2 more options for deposit holders etc.
Potential Risks of Licensing Corporate:
Lending money to its own group companies can increase the risk of fraud and default. Poor corporate governance, concentration of economic forces and excessive competition can produce adverse results.
Source – The Hindu