RBI may dilute private bank ownership norms

RUN-UP TO THE CREDIT POLICY

Private and foreign bankers are hopeful that the Reserve Bank of India (RBI) may clear the air on ownership patterns in Indian private banks in the forthcoming mid-term review of the annual policy statement next week.

The issue has been fraught with controversy ever since the RBI put out its first draft guidelines on it in early July, with the regulators and the regulated holding opposing views.

The Indian Banks' Association (IBA), the apex banking association in the country, has in its list of suggestions to the central bank asked for dilutions in these guidelines.

IBA has asked RBI to limit a single/related entity's holding in a private bank to 26 per cent instead of the 10 per cent mentioned in the draft guideline.

Bankers find the 10 per cent limit on promoter holding/FDI single/related entity holding as prohibitive to the flow of capital. IBA's thinking is that with an entity's holding increased to 26 per cent, the right to oppose any board resolution would be intact, explained bankers.

If accepted, the foreign banks will heave a sigh of relief as most of them are taking a relook at their India plans following the regulator's insistence that no single entity should hold more than 10 per cent in a private bank.

However, it's anybody's guess whether RBI will take up the entangled issue when both the Prime Minister and the finance minister have made statements at the recent World Bank conference in New York that there is no need to distinguish between FII and FDI investment.

In the banking system, FDI and FII investments are treated differently as of now. As per the extant regulations laid down by the government in March, FDI investment in private sector banks is capped at 74 per cent under the automatic route which includes a sub-limit for FIIs at 49 per cent.

Meanwhile, there is also expectation that the Rs 300 crore capital requirement for setting up a private bank would be reduced. The finance ministry is reportedly prevailing on the RBI to dilute the requirement.

With regards to the draft guidelines on ownership, RBI has announced its openness to change it and has said it would come out with the second draft guidelines after taking feedback from the banking industry. "Parts of the second draft guideline is what we expect to see in the policy," said a banker.

The central bank held its first consultative discussion with bankers and investors last month and a large section of the banking community felt that the RBI would be open to changes in the proposed guidelines.

Several bankers have expressed their views that the new guidelines would mean capital challenges for private banks.

Bhaskar Ghose, managing director of IndusInd Bank, had even gone to the extent of saying that if such guidelines had been in place earlier, many existing bank promoters may not have set up the banks in the first place.