Private banks to move RBI over shareholding fiat

Private banks, both old and new, are planning to move the Reserve Bank of India (RBI) as well as the finance ministry in a bid to stall the central bank's proposal to restrict the shareholding of a single entity or a group in a private bank to a maximum 10 per cent.

These banks plan to coordinate with both the Confederation of Indian Industry (CII) and the Indian Banks' Association (IBA) to impress upon the RBI and the finance ministry that the proposal to cap the stakeholding at 10 per cent is retrograde.

The managing director of a new private bank confirmed that private banks would lobby both the central bank and the finance ministry on the issue.

"Old private banks also will join us, although their objective is different. They are not happy with the RBI's proposal to raise the net worth of private banks to Rs 300 crore," he said.

"Private sector banks are planning to collectively make a representation through industry associations to the Reserve Bank of India," added Dipak Gupta, executive director, Kotak Mahindra Bank.

The draft policy framework for ownership and governance of private banks, unveiled by the Reserve Bank of India Friday last for feedback, says that in respect of a new licence for private banks, the promoters' shareholding can be higher at the initial stage but will have to be brought down to 10 per cent in a time-bound manner.

Further, where a corporate entity is the owner, the objective will be to ensure that no single individual or entity has ownership and control in excess of 10 per cent of that entity.

Where a financial entity is the owner, the objective will be to ensure that it is a widely held entity, publicly listed and a well established regulated financial entity in good standing in the financial community.

Gupta said that though the intention of the draft (to ensure that the equity in banks is widely held) is good, the '10 per cent criterion' was a bolt from blue. A senior executive at a south-based old private bank observed that if the draft is implemented, it would send wrong signals about the continuity of the government's policy in areas like telecom and aviation.

"A widely held equity structure does not necessarily ensure corporate governance. There are other ways to do it. The RBI seems to be going backwards on reforms," said a banking sector analyst.