Banking

RBI Working Group Suggests Converting NBFCs Into Banks, Other Sweeping Changes

It also recommended increasing the size of the stake that promoters in private banks can hold to 26% from the current 15% over a 15-year time frame.

Mumbai: A working group of the Reserve Bank of India has recommended a series of changes that could transform the country’s banking landscape by paving the way for large industrial conglomerates to set up banks.

The proposals could also allow large non-banking finance companies and niche payment banks to convert into lenders.

In a report made public on Friday, the committee recommended that banking regulations be amended to allow large industrial houses to act as so-called bank promoters, meaning they could take a significant stake in a lender, something the central bank has strongly resisted in the past.

As well as opening up the banking sector, the committee also suggested adjusting the size of the stakes major shareholders can hold in a lender.

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For non-promoter shareholdings a uniform cap of 15% instead of a current tiered structure has been suggested by the committee, which was formed in June to review ownership guidelines and the corporate structure of Indian private sector banks.

It recommended increasing the size of the stake that promoters in private banks can hold to 26% from the current 15% over a 15-year time frame.

In 2018, billionaire banker Uday Kotak, managing director of Kotak Mahindra Bank, took the central bank to the court over an order from the regulator to reduce his stake in the lender to 15%.

The panel’s recommendations may also pave the way for shadow banks to convert into lenders. A Non Banking Financial Company (NBFC) or shadow bank with assets of Rs 500 billion ($6.75 billion) and above may be considered for conversion into a bank after 10 years of operations, the report said.

(Reuters)