Financial Daily from THE HINDU group of publications
Monday, Oct 11, 2004
Financial Daily from THE HINDU group of publications Monday, Oct 11, 2004 |
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Private Banks Money & Banking - Financial Policy Ownership norm: Existing pvt banks may get a breather Ministry for applicability on prospective basis Sarbajeet K. Sen
New Delhi , Oct. 10 IF the Government has its way, the ownership pattern of existing private sector banks might not have to undergo any major change on account of the proposed new norms on ownership pattern being framed by the RBI. The Finance Ministry feels that the new norms should not be made applicable on a retrospective basis. This would spare the existing private banks from complying with the new norms once they come into force. The Ministry feels that making the norms applicable to the existing banks would result in large-scale upheaval in the equity structure of several existing banks that might not be in the best interest of the industry. "Our view is that the norms should be applicable on a prospective basis," a senior Finance Ministry official said. In July, the RBI had come out with draft norms on ownership and governance of private banks that proposed indicative figures on the extent of shareholding that would be permitted for different kind of investors as well as minimum capital norms. The RBI had said that existing banks that do not conform to the norms should do so in a phased manner, with the indicative timeframe for compliance being three years. To ensure diversified holding in banks, the draft proposed that no single entity or group of related entities should hold shares in excess of 10 per cent of the paid up capital in a bank, directly or indirectly. Prior approval from the central bank would be necessary for higher holding. The 10 per cent limit has also been proposed for corporate entities, including large industrial houses. The norms had proposed that a private sector bank would be allowed to hold shares in another private sector bank only up to 5 per cent of the paid up capital of the investee bank. Therefore, any foreign bank with a presence in the country would also be allowed to hold shares in any other private bank only up to 5 per cent of the paid up capital of the investee bank. The RBI Deputy Governor, Dr Rakesh Mohan, had later defended the move to make the norms applicable to the existing banks. He had said that this was necessary since the "fundamental presumption in the policy was that any shareholding above 10 per cent would have to satisfy the regulator of the fit and proper status and sound governance principles on a continuing basis." However, he had said that the central bank would take care that the norms are applied to the existing owners "in a non-disruptive and consultative fashion." He had said that in cases where banks were going through a process of rehabilitation on the basis of specific approvals, the RBI would take into consideration commitments made as part of the approval process for approving the ownership pattern. The central bank is expected to come out with its second draft soon based on the feedback received from various stakeholders in the banking industry and the Government.
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