RBI-Kotak stand-off: Review panel for ownership norms among key proposals

Amid calls for changes to the contentious ownership norms for private sector lenders, the RBI is likely to look into various proposals including setting up of a review panel and making the regulations more friendly towards Indian control of home-grown banks.

The move is significant as it comes in the wake of the regulator having been dragged to the Bombay High Court by Kotak Mahindra Bank. Its peer Bandhan Bank merged with Gruh Finance, in a deal widely considered to have been driven by the need to comply with the promoter shareholding norms.

“RBI has received at least three proposals and one of them relates to setting up a review committee on ownership norms for private sector banks and all options are being explored,” a source said. 

Other proposals relate to individual cases, including granting more time and more possible routes to meet the norms, unlike the review panel one that would have wider ramifications for the entire sector, the source added. 

An email to the banking regulator did not elicit a response immediately. Governor Shaktikanta Das had recently declined to answer a question on whether the RBI is mulling a re-look at the promoter shareholding norms, citing that the matter is sub-judice.

The matter is scheduled to come up for hearing at the Bombay High Court on Tuesday.

The bank had proposed one preference share route to reduce the promoter shareholding in August 2018, only to be shot down by the regulator.

The Centre for Economic Policy Research (CEPR), a right-leaning think tank, has said it is high time for a review of regulations and for re-working the model of governance and ownership norms for Indian private sector banks.

Almost all major private sector lenders have ownership of over 50 per cent by foreign investors collectively. The RBI wants the banks to have a diversified ownership in best interest of governance practices and also limits the voting rights in cases.

In case of Bandhan Bank, the micro-lender turned commercial bank announced a deal months after facing regulatory pressure for not complying with promoter shareholding requirements.

The RBI had refused to allow the lender from automatically opening branches and had also frozen CEO C S Ghosh's remuneration.

The bank responded with the all-share Gruh deal, which brought down the promoter shareholding to 60 per cent, which is still higher than the 40 per cent requirement. In media interactions, the bank management has sounded confident of meeting the 40 per cent level.