AMENDMENT TO BANKING LAW

Subject : Economics

Context : RBI panel moots allowing large corporates to start private banks after amending bank regulation law.

Concept :

• An Internal Working Group (IWG) of the Reserve Bank of India (RBI) has recommended raising the cap on promoters’ stake in private sector banks to 26% in the long run (15 years).
• The holding is currently mandated at 15% of the paid-up voting equity share capital of the bank.
• As regards non-promoter shareholding, it has suggested a uniform cap of 15% of the paid-up voting equity share capital of the bank for all types of shareholders.
• The IWG, set up in June, has also suggested that large corporate or industrial houses be allowed as promoters of banks only after necessary amendments to the Banking Regulation Act, 1949 .
• Also, well-run non-banking financial companies (NBFCs), with an asset size of ₹50,000 crore and above, including those owned by a corporate house, may be considered for conversion into banks .
• It should have completed 10 years of operations, meeting due diligence criteria and compliance with additional specified conditions, the panel said.

Conversion to SFB

• The panel also recommended that for Payments Banks intending to convert to a Small Finance Bank (SFB), their track record of three years should be considered sufficient.
• Small Finance Banks and Payments Banks may be listed within ‘6 years from the date of reaching net worth equivalent to prevalent entry capital requirement prescribed for universal banks’ or ‘10 years from the date of commencement of operations’, whichever is earlier.
• The IWG also suggested that the minimum initial capital requirement for licensing new banks be enhanced from ₹500 crore to ₹1,000 crore for universal banks, and be raised to ₹300 crore from ₹200 crore for SFBs.