The RBI is keeping extensive information on ownership of the investors of private sector banks to provide safety of the bank. Guidelines on shares/voting rights are provided by the RBI and such information is acquired by the RBI with changes in shareholding status of private sector banks. The failure of Yes Bank has reinforced the shareholding norms of the RBI and its scrutiny further.
There is a requirement of prior approval for acquisition of shares/ voting rights of 5 per cent and above in a private sector bank. The RBI shall assess the “fit and proper” status of the major promoters, major shareholders, and foreign investors according to the criteria laid down.
RBI regulations on promoter’s shareholding in private sector banks
The RBI has extensive guidelines for reducing the promoter’s shares in a phased manner. “The promoter / promoter group shareholding in the bank, during the lock-in period and thereafter, shall be governed by the respective guidelines under which they are licensed.”
Fit and proper criteria for promoters.
If the applicants are individuals, the RBI would assess the ‘fit and proper’ status of the applicants on the basis of their past record of sound credentials and integrity; financial soundness and successful track record of professional experience or of running their businesses, etc. in the case of both universal banks (for at least past 10 years) and small finance banks (for at least past 5 years). If promoters are institutions like NBFCs, there will be separate criterial to assess the fitness.
Promoter’s shareholding and the time structure
According to the RBI’s rules, promoters need to reduce their holding to 40 percent within three years of getting a banking license, and then to 20 percent in 10 years and to 15 percent within 15 years. For example, such a guideline has to be followed now by new banks like Bandhan Bank and Kotak Mahindra bank. Small Finance Banks also have such separate guidelines.
Table: RBI’s promoter shareholding norms in private sector banks – the promoter should reduce his shareholding in his bank.
|Reduction of shareholding||Time period after getting the license|
|Reduce to 40%||Within three years.|
|Reduce to 20%||Within 10 years.|
|Reduce to 15%||Within 15 years.|
Table: Other regulations in private sector bank share holding
|Entity/person||Long term shareholding limit|
|Individuals and non-financial entities (other than promoters / promoter group)/natural persons||10%|
|Promoters being individuals and non-financial entities in existing banks||15%|
|Financial sector entities, other than regulated or diversified or listed,||15%|
|Regulated, well diversified and listed / supranational institution / public sector undertaking / Government.||40%|
Table: foreign investment norms in private banks
Foreign investment regulations in private sector banks
|FDI/FII/NRI (all together)||Shall not exceed 74%|
|Shareholding by resident Indians||At all times, at least 26 per cent of the paid-up share capital|
Cross holding of shares (one bank holding shares in another bank)
Banks (including foreign banks having branch presence in India) shall not acquire more than 10 per cent or more of the investee bank’s equity capital. However, in case of exceptional circumstances such as, restructuring of problem / weak banks or in the interest of consolidation in the banking sector, etc., RBI may permit a higher level of shareholding by a bank.