Promoter stakes in private banks: Case for a higher cap

A Reserve Bank of India (RBI)-appointed committee headed by former Axis Bank chairman PJ Nayak has recommended that promoters be allowed to hold 25 per cent stake in private sector banks as against the present norm of 10 per cent

• The norms on new bank licences have kept the maximum promoter shareholding at 15 per cent
   
• According to the Nayak committee, since a separate category of investors, namely authorised banks investors (ABI) comprising all diversified funds which are discretionally managed by fund managers, are proposed to have 20 per cent stake in the bank, promoters naturally should have a higher share
   
• However, at present, even though RBI norms cap promoter holding in private sector banks at 10 per cent, except for one, promoter shareholding in all new generation private lenders were above the limit, as on end-December 2013
   
• Most of the private banks had furnished a road map to the banking regulator on lowering their stake."As of end-December 2013, the promoters of all but one of the new private sector banks were in breach of the ceiling, though the regulatory justification provided is that of the promoters 'being of good standing'. Higher limits with effective enforcement are preferable to lower limits which apparently cannot be enforced," the Nayak committee noted