RBI panel for no cap on promoters stake in pvt banks for 1st 5 yrs, 26% after 15yrs

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Reserve Bank of India’s (RBI) internal working group has favoured allowing promoters to maintain any percentage of holding in the first five years, more than the present minimum at 40%, and then capping it at 26% after 15 years of operations.

According to the current norms of RBI, a promoter of a private bank needs to pare holdings to 20% within 10 years and to 15% within 15 years.

The Reserve Bank on Friday while releasing the report on the ownership guidelines and corporate structure for private sector banks said the cap on promoters stake in the long run of 15 years may be raised from the current levels of 15% to 26% of the paid-up voting equity share capital of the bank for the first five years.

Promoter remains committed to banks

The report favours no changes in the extant instructions related to initial lock-in requirements on the mandated lock-in period for promoters initial shareholding. This may continue as a minimum of 40% of the paid-up voting equity share capital of the bank for the first five years.

They favour the continuation of the extant stipulation on the 40% holding for the first five years to ensure that the promoters maintain skin in the game and credibility of the control of the promoter group till the business is properly established and stabilised.

It will further ensure that the promoter remains committed to the banks in the formative yeats, providing it necessary strategic direction.

The report also says there is no need to fix any cap on the promoter’s holding in the initial five years as the existing licensing guidelines have not mandated any cap on promoter’s shareholding in the five years as initially, it may be challenging for a new bank to raise capital from external source of investors.