The RBI Internal Working Group’s report on ownership guidelines and corporate structure for private banks could help existing players such as IndusInd Bank, and analysts said it would also encourage others to work towards acquiring a banking licence.
“The report rightfully puts a greater onus on the promoter-shareholders to exercise oversight through a higher shareholding limit of 26 per cent, with commensurate voting rights. It helps strengthen the institutional framework by ensuring promoter responsibility with more skin in the game, a supervisory stance for large conglomerates, including consolidated supervision will ensure the necessary checks and balances in the system,” Ashok Hinduja, Chairman of the Hinduja Group of Companies (India) said in a statement on Sunday.
“The Working Group has taken a timely and bold stand by proposing a uniform regulatory framework for the entire banking system, dispensing with the regulatory arbitrage available between banks, NBFCs, small finance banks and payment banks,” he further noted.
Positive for IndusInd Bank
His comments are significant given that IndusInd Bank promoters – IndusInd International Holdings Ltd and IndusInd Ltd, had earlier this year sought approval from the Reserve Bank of India to increase their holding in the bank to 26 per cent from about 15 per cent.
“Raising promoters’ stake to 26 per cent will not only encourage NBFCs but will be positive for IndusInd Bank (their promoters recently applied to RBI for raising stake, though were not allowed at this juncture),” said a report by ICICI Securities.
The promoters hold 14.68 per cent stake in IndusInd Bank as on September 30, 2020.
The report of the internal working group has suggested raising the cap in the long run (15 years) to 26 per cent of the paid-up voting equity share capital of the bank. Under current RBI norms, promoters of private banks have to reduce their stake to 40 per cent within three years of operations and then to 15 per cent within 15 years.
However, much would depend on the final guidelines by the RBI. In recent years, banks, including Kotak Mahindra Bank and Bandhan Bank, have faced issues in meeting the norms for dilution of promoter stake.
More likely to seek licence
Meanwhile, analysts said that more players could apply for a banking licence with the working group’s recommendations for the conversion of well-run decade-old large NBFCs (with an asset size of over Rs 50,000 crore) into banks, and permitting large corporates and industrial houses as promoters of banks subject to amendments in the Banking Regulation Act of 1949.
“We believe final recommendations are favourable for corporate houses promoted large NBFCs namely Bajaj Finance, L&T Finance, Mahindra Finance, Aditya Birla Capital, etc. who may now look forward to converting to a universal bank. Also, large NBFCs — Shriram, Piramal, Cholamandalam, etc. may evaluate the regulatory arbitrage of operating under a bank than NBFCs, and if favourable, may also eye a banking licence,” said the note by ICICI Securities.
Earlier, a spokesperson for the Aditya Birla Group had also welcomed the recommendations. “NBFCs with a proven track record, supported by the brand values of reputed corporates, can play a key role in bringing the benefits of banking and economy to the underserved and newer segments of India,” the spokesperson said.