The Hindu Business Line : Ministry wants RBI to review ownership norms for private sector banks

THE Ministry of Finance has suggested to the Reserve Bank of India that when a bank is looking at investing in an Indian private sector bank, the central bank should also consider the equity structure of the investor bank to determine the extent of holding it will be permitted to acquire in the investee bank.

Currently, the RBI's focus is solely on the holding pattern in the investee bank. To ensure diversified holding, the central bank has proposed stringent caps on the extent of holding permitted for investors. However, the Finance Ministry believes that if an investor bank has a sufficiently diversified holding, it should be allowed to automatically acquire a higher than 5 per cent stake in the investee bank.

The 5 per cent cap has been proposed for both domestic and foreign bank wanting to acquire shares in an Indian private bank.

"We have suggested to the RBI that if the holding pattern in the investor bank is diversified enough, then it should be allowed to hold a higher stake. Suppose a bank has 10 owners with equal shareholding each, then it could be allowed to have a more meaningful stake in the domestic entity. This would generate wider interest in investing in banks," a senior Finance Ministry official said. He said the new limit could be decided by the RBI in consultation with other stakeholders in the banking industry.

The RBI proposed the restriction on holding in its draft guidelines on ownership pattern in private sector bank issued in July.

"Any private sector bank will be allowed to hold shares in any other private sector bank only up to 5 per cent of the paid-up capital of the investee bank. On the same analogy, any foreign bank with presence in India will 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 draft guidelines said.

The central bank is currently collating the responses to the draft and is to issue a second draft shortly.

Besides proposing a 5-per cent cap on a bank's holding in another bank, the RBI has also suggested that no single entity or group of related entities should have shareholding in excess of 10 per cent of the paid-up capital of the private sector bank. Any higher level of acquisition will be with the prior approval of the central bank.

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Ministry wants RBI to review ownership norms for private sector banks