RBI raises higher cap on promoter stake in private banks at 26%

Reserve Bank of India had formed an Internal Working Group (IWG) in June 2020, to review the extant guidelines on ownership and corporate structure for Indian private sector banks. The IWG had 5 members with Shrimohan Yadav as the convenor. The Internal Working Group (IWG) had made 33 recommendations to RBI. Now RBI has accepted 21 recommendations out of these 33.

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Some important points from these recommendations are given below:

The initial lock-in requirements will continue as a minimum of 40 per cent of the paid-up voting equity share capital of the bank for the first five years.
The cap on promoters’ stake in the long run of 15 years has been raised from 15 per cent (earlier) to 26 per cent of the paid-up voting equity share capital of the bank.
The minimum initial capital requirement for licensing new banks has been increased as below:

For Universal Banks: The initial paid-up voting equity share capital/ net worth required to set up a new universal bank has been increased to ₹1000 crore (from present ₹500 crores).
For SFBs: The initial paid-up voting equity share capital/ net worth required to set up a new SFB, has been increased to ₹300 crores (from present ₹200 crores).
For UCBs transiting to SFBs: The initial paid-up voting equity share capital/ net worth has been increased to ₹150 crores (from present ₹100 crores) which has to be increased to ₹300 crores in five years (from present ₹200 crores).

All the new Small Finance Banks which are set up now, should be listed (on the stock exchange) within ‘eight years from the date of commencement of operations. Note that Universal banks shall continue to be listed within six years of commencement of operations.

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