The Hindu Business Line : `Private banks now more attractive'

This makes private banks more attractive as an investment option for global investors, especially foreign banks, as the interested parties can now take part in the running of the bank.

According to Mr Krishnan Sitaraman, Head - Financial Sector Rating, Crisil: "it is a long pending requirement for the private banks."

He added: "If this happens it bodes well for the private banks. Till now the incentive for interested parties to take up significant stake in private banks was restricted by this cap on voting rights."

While all private banks will gain, old private banks are expected to benefit more, he said.

Mr Bhaskar Ghose, Managing Director, IndusInd Bank, said it is only fair that investors be given a right to have their say. "It is a big thing for private banks because lot of investors will be looking to pick up stake," he said.

However, this respite for private banks comes with a rider that any investor holding above five per cent will first be whetted by Reserve Bank of India and will give the right only if it deems the investor as `fit and proper'. This will make it difficult for weak banks scouting for foreign investors.

According to Mr Ghose, the rider shrinks the universe of investors for weak banks. "A weak bank looking for likely investors may find it difficult, as RBI will drive away any investor whom it does not consider suitable."

But, Mr Sitaraman said that the precaution is necessary for the proper and appropriate development of the banking industry. "This rider is in line with RBI wanting to protect depositors' interests and ensuring that people of high integrity take up stake," he added.

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