Saturday, 28 November, 2020

RBI committee recommends giving banking licence to large corporate or industrial houses

RBI Group Suggests NBFCs With Assets Of 50K Cr Can Become Banks ‘Raise private bank promoter cap to 26%’
Ginger Lawrence | 21 November, 2020, 23:30

Also, nearly all the experts were of the view that the present prescription of listing within six years from commencement of operations, for universal bank in the "on-tap" licensing guidelines can be followed uniformly including small finance banks, which had been given only three years from reaching networth of Rs 500 crore, the report noted.

NBFCs, also called as shadow banks, are akin to normal banks, but they can not accept demand deposits and do not form part of the payment and settlement system and can not issue cheques drawn on itself. This may act as a big nudge to NBFCs sitting on the side lines to convert into banks.

In a report made public on Friday, the committee recommended that banking regulations be amended to allow large industrial houses to act as so-called bank promoters, meaning they could take a significant stake in a lender, something the central bank has strongly resisted in the past.

The universe of India's NBFCs including 9,601 companies of which top 50 account for 80 percent of the market share of loans.

The panel, headed by RBI executive director P.K. Mohanty, was set up in June to review ownership guidelines and corporate structure for Indian private sector banks.

As on March 31, 2020, the asset size of India's NBFC sector, including housing finance companies, stood at 688 billion USA dollars.

Bharti Singh, Haarsh Limbachiyaa arrive at NCB office in Mumbai
Earlier, Arjun Rampal and his girlfriend Gabriella Demetriades were summoned by the NCB for questioning in the drug case . Wankhade also confirmed that drugs were recovered from their home.

The panel also suggested raising the cap on promoter stake in private sector banks to 26% of the paid-up equity after 15 years of operation.

The panel has also suggested that large non-bank lenders with asset sizes of more than ₹50,000 crore, including those owned by corporates, should be considered for conversion into banks, provided they have completed 10 years of operation. The holding is now mandated at 15% of the paid-up voting equity share capital of the bank. The committee said that for this, 3 years of experience as a payment bank should be understood.

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.

As many as 14 licenses for universal banks have been issued in the private sector since 1993, out of which just 10 are operational. However, it should be mandatory only in cases where the individual promoters, promoting entities or converting entities have other group entities, the panel added. Banks licensed before 2013 may move to a NOFHC structure at their discretion, once the NOFHC structure attains a tax-neutral status. RBI has sought comments on the draft report by 15 January.

"Where corporate house is a promoter, strict regulations on the use of funds held with the bank and monitoring of related party transactions will be essential". However, they may be permitted to make total investments in a financial or non-financial services company, which is not a subsidiary or joint venture or associate up to 20% of the bank's paid-up share capital and reserves. For Small Finance Bank, it was suggested to increase it from Rs 200 crore to Rs 300 crore.