RBI Proposed Big-Ticket Corporate Houses into Banking Business

RBI Proposed Big-Ticket Corporate Houses into Banking Business

By: Ashwathy Nair

• A decision that will let many entities to apply for banking licences.
• An Internal Working Group had been constituted by RBI for Indian private sector banks.
• To double the minimum initial capital required to start a bank has been proposed by the central bank.

A plan that would allow big-ticket corporate houses into the banking business has been proposed by the Reserve Bank of India. With this decision, it is likely to see that many entities would start applying for banking licences.

In a report, Reserve Bank of India stated that “In order to prevent the connected lending and exposures among the banks and other financial and non-financial group entities, large corporate/industrial house would be permitted as promoters of banks only after necessary amendments to the Banking Regulation Act, 1949. It would also include consolidated supervision and strengthening of the supervisory mechanism for large conglomerates.”

This year in the month of June, an (IWG) Internal Working Group was constituted by the Reserve Bank of India in order to review corporate structure as well as extant ownership guidelines for the Indian private sector banks.

On Friday, some of the recommendations of the Internal Working Group was made for the public by the Reserve Bank of India.

The regulator also indicated that well-run shadow banks (NBFCs) with an asset size of more than Rs 50,000 crore could be considered for conversion into banks subject to 10 years of operations being completed and due diligence criteria being met. In India, there are 9,601 shadow banks, of which the top 50 account for 80 per cent of the loan market share.

However, a proposal with the intention to double the minimum initial capital that is required to start a bank has been proposed by the central bank. The Internal Working group stated that the minimum initial capital that is needed for licencing new banks should be increased for universal banks from Rs 500 crore to Rs 1,000 crore and small finance banks from Rs 200 crore to Rs 300 crore.

The study of the working group supports raising the limit on the stake of the promoter to 26 per cent from the existing 15 per cent.

The Reserve Bank of India stated that on Friday, the report was displayed on the website of RBI for comments from members of the public and stakeholders. It also added that by January 15, 2021, comments on the report could be submitted through email.