A Reserve Bank of India (RBI) panel recommended on Friday granting banking licenses to large industrial companies, which could allow the Aditya Birla group, the Tata group and Reliance Industries Ltd to apply for banking licenses.
The panel has also suggested that large non-bank lenders with asset sizes greater than ₹Consideration should be given to converting into Rs 50 billion banks, including those owned by companies, provided they have completed 10 years of operation. The proposal, if accepted, will make Bajaj Finance Ltd, L&T Finance Holdings Ltd, Shriram Transport Finance Ltd, Tata Capital Ltd and Mahindra and Mahindra Financial Services Ltd the main candidates for banking licenses.
Sanjiv Bajaj, President and Managing Director of Bajaj Finserv Ltd, said the proposal is progressive, practical and protective of the interests of all stakeholders.
The recommendations, the bankers said, could usher in a new wave of consolidation in the sector, where several lenders are struggling to meet minimum capital standards due to an increase in bad loans.
The changes will require amendments to the Banking Regulation Law.
The panel also suggested that payment banks can become small financial banks after three years of operations, which could benefit payment banks Paytm, Jio and Airtel.
“We welcome the report of the RBI internal working group on the ownership guidelines and corporate structure of private sector banks in India. NBFCs with a proven track record, backed by the brand values of renowned companies, can play a key role in bringing the benefits of banking and the economy to newer and underserved segments, “said a spokesperson for the Aditya Birla Group.
The panel, led by RBI CEO PK Mohanty, was set up in June to review ownership guidelines and corporate structure of Indian private sector banks. RBI has requested comments on the draft report before January 15.
The panel also suggested raising the limit on promoters’ participation in private sector banks to 26% of paid-in capital after 15 years of operation. Current regulations oblige private bank developers to reduce their ownership to 40% in three years and 15% in 15 years.
The panel suggested reducing the promoter’s stake below 26% at any time after the first five years of lockdown. For equity participation by non-promoters, current long-term equity participation guidelines may be replaced by a simple cap of 15% of the bank’s paid voting capital stock, the committee said.
The measure has a direct implication in the participation of the promoters of Kotak Mahindra Bank and IndusInd Bank, where the participation of the promoters has been a controversial topic.
The panel also suggested that the structure of a non-operating financial holding company (NOFHC) should continue as the preferred route for all new banking licenses. Banks currently under NOFHC may be allowed to exit such a structure if they have no other group entities in their fold. Banks licensed prior to 2013 can move to a NOFHC structure at their discretion, once the NOFHC structure reaches tax neutral status.
The panel also suggested limiting banks’ investment in any new or existing entity to 20%. However, they may be allowed to make full investments in a financial or non-financial services company, other than a subsidiary or joint venture or associate, up to 20% of the paid-up capital stock and reserves of the bank.
The Mohanty panel also recommended the harmonization of various licensing guidelines.
“Whenever a new guideline for licensing is issued, if the new rules are more relaxed, the benefit should go to existing banks immediately. If the new rules are stricter, legacy banks should also confirm the new stricter regulations, but the transition path may end in consultation with the affected banks, “the report read.
He suggested increasing the initial paid-up capital or net worth required to establish a new universal bank for ₹1000 crore; for SFB for ₹300 million rupees and for the urban cooperative bank moving to SFBs, it is ₹300 million rupees in five years.
.
