Shares of select banks, non-banking finance companies (NBFCs) and microfinance institutions (MFIs) after the Reserve Bank of India's (RBI's) internal working group proposed changes in the corporate structure of Indian private sector banks.
Equitas Holdings, Ujjivan Small Finance Bank and IDFC hit an upper circuit of 20% while Ujjivan Financial Services, IDFC First Bank, AAVAS Financiers, Shriram City Union Finance, Bajaj Holdings & Investment, Bajaj Finserv and Indusind Bank gained by between 4% to 18%.
The Reserve Bank of India (RBI) had constituted an Internal Working Group (IWG) on 12 June 2020 to review extant ownership guidelines and corporate structure for Indian private sector banks.
IWG has since submitted its report, recommending that the cap on promoters' stake in the long run (15 years) may be raised from the current level of 15% to 26% of the paid-up voting equity share capital of the bank.
As regards non-promoter shareholding, a uniform cap of 15% of the paid-up voting equity share capital of the bank may be prescribed for all types of shareholders.
The working group in its proposal has also looked at allowing large corporate/industrial houses as promoters of banks, but only after necessary amendments to the Banking Regulation Act, 1949 and strengthening of the supervisory mechanism for large conglomerates, including consolidated supervision.
IWG recommended that well run large non-banking finance companies (NBFCs), with an asset size of Rs 50,000 crore and above, including those which are owned by a corporate house, may be considered for conversion into banks subject to completion of 10 years of operations and meeting due diligence criteria and compliance with additional conditions specified in this regard.
For payments banks intending to convert to a small finance bank, track record of 3 years of experience as payments bank may be considered as sufficient, it added. Small finance banks and payments banks may be listed within '6 years from the date of reaching net worth equivalent to prevalent entry capital requirement prescribed for universal banks' or '10 years from the date of commencement of operations', whichever is earlier, it said.
The working group further suggested that the minimum initial capital requirement for licensing new banks should be enhanced from Rs 500 crore to Rs 1000 crore for universal banks, and from Rs 200 crore to Rs 300 crore for small finance banks.
"Non-operative Financial Holding Company (NOFHC) should continue to be the preferred structure for all new licenses to be issued for universal banks. However, it should be mandatory only in cases where the individual promoters / promoting entities/ converting entities have other group entities, IWG said.
Banks currently under NOFHC structure may be allowed to exit from such a structure if they do not have other group entities in their fold, the working group added.
Further, it said that RBI may take steps to ensure harmonisation and uniformity in different licensing guidelines, to the extent possible. Whenever new licensing guidelines are issued, if new rules are more relaxed, benefit should be given to existing banks, and if new rules are tougher, legacy banks should also conform to new tighter regulations, but a non-disruptive transition path may be provided to affected banks.
The report is placed on the RBI website on 20 November 2020 for comments of stakeholders and members of the public. Comments on the report may be submitted by 15 January 2021 through email. RBI will examine the comments and suggestions before taking a view in the matter.
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