RBI norms on pvt banks may trigger consolidation

The proposed Reserve Bank of India (RBI) norms may trigger consolidation among private sector banks going by its 'Comprehensive Policy Framework for Ownership and Governance of Private Banks'.

The policy further advocates that promoters will have to pare down their stake to 10 per cent in private sector banks.

In addition, the draft proposal states that the capital requirement of existing private sector banks will have to be at par with the entry capital requirements for new private sector banks.

These new banks have to have an initial capital of Rs 200 crore, with a commitment to increase it to Rs 300 crore within a three years.

"The proposal that capital requirement of existing private sector banks should be at par with the entry capital requirement for new private sector banks will force mergers among banks," say analysts.

As of March-end 2004, at least a dozen old private sector banks had a paid-up capital of less than Rs 200 crore.

The banks with less than Rs 200 crore paid-up capital are: Bank of Rajasthan (Rs 107.56 crore), Bharat Overseas Bank (Rs 15.75 crore), City Union Bank (Rs 24 crore), Dhanalakshmi Bank (Rs 32.06 crore), Federal Bank (Rs 21.76 crore), ING Vysya Bank (Rs 22.65 crore), Jammu & Kashmir Bank (Rs 48.25 crore), Karnataka Bank (Rs 40.43 crore), Karur Vysya Bank (Rs 17.98 crore), Lakshmi Vilas Bank (Rs 11.51 crore), Lord Krishna Bank (Rs 56.69 crore), South Indian Bank (Rs 35.78 crore), and UWB (Rs 29.89 crore).

Most new private sector banks have significant promoter holding, which as per the draft guidelines would need to be brought down to 10 per cent.

As per the shareholding pattern as on March 31, promoters in IDBI Bank have a 56 per cent stake. In UTI Bank, Unit Trust of India will have to pare down its 33.36 per cent stake to 10 per cent.

In addition, the Life Insurance Corporation holds 13.46 per cent stake and would equally need to bring this down.

Housing Development Finance Corporation (HDFC) together with HDFC Investment Ltd has a combined group holding of 24.18 per cent in HDFC Bank.

In ICICI Bank, the Government of Singapore has over 13 per cent stake through two of its institutional arms. In addition, LIC, which picked up an additional holding in ICICI Bank on Friday "" crossing the 10 per cent threshold limit at 10.07 per cent "" would need to pare down its stake.

Promoter's holding in IndusInd Bank will equally need to be pared down as IndusInd International Holding has 31.1 per cent in the bank, IndusInd Ltd holds 7.04 per cent, while the group company Ashok Leyland has 15 per cent.

Promoters of Kotak Mahindra Bank hold 60.95 per cent, while in the case of Bank of Punjab, the promoter's holding is at 34.66 per cent.

The central bank has not given any time frame but has asked individual promoters to give a time frame as to when they would be able to pare down their holdings.