Pvt bank stake rule may be eased

RBI, along with Indian Banks' Association, working on alternative

In its revised proposal for private banks, the Reserve Bank of India (RBI) may do away with the suggestion of 10 per cent holding limit in private banks.

The RBI, along with the Indian Banks Association (IBA) and private bankers, are working on an alternative model that will do away with the 10 per cent holding cap on private banks suggested in the first draft.

"The underlying idea behind the 10 per cent holding cap and a five per cent ceiling for banks' holding in another private bank was to bring in good governance. The restriction on holding might not necessarily solve the problem of corrupt corporate governance in private banks," explained H S Sinor, chief executive, Indian Banks Association.

IBA held a meeting a couple of days ago with private bankers to discuss the 10 per cent ceiling norm which was introduced by RBI in draft from.

"We have discussed the issue with senior private bankers at the last meeting, and they are of the view that a separate model could be developed which would address the issue of good corporate governance," he added.

"We are working on it and are about to develop a new model for achieving the purpose without having to abide by the 10 per cent limit. This model is expected to be ready in the next few days following which we would approach the apex bank for its views," Sinor explained.

"A sub-group of IBA along with senior private bankers are working on this," he said.

Another chief executive of a new private sector bank, who was present at the meeting, said, "The RBI wants stakes in private banks to be widely held as is the case in the US or UK. However, given the maturity level of the Indian banking system, a 10 per cent limit would not be appropriate here. A new model could facilitate entry of venture capitalists or permit large holdings by professional groups such as foreign banks themselves who can bring in quality professionals as well as capital. Professional management system and the constitution of board of directors could also be given a relook."

Sources said that all private bankers present in the meeting were against the idea of the ceiling and favoured new corporate governance norms that could be brought in.

In a nutshell

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• The central bank had earlier proposed a 10 per cent holding limit in private banks and 5 per cent ceiling on a bank's holding in another private bank
• The bankers association held a meeting with private bankers a couple of days ago
• Private bankers present in the meeting were against the idea of the ceiling
• Instead they favoured new corporate governance norms