Jul 01, 2016

Guidelines for Ownership in Private Sector Banks

RBI has, by the master direction dated May 12, 2016 (‘Directions’), issued guidelines regarding ownership and voting rights in private sector banks in India. The Directions prescribe shareholding investment limits in a bank’s paid-up capital by various types of shareholders as follows:i. Promoters – limits will be as per the prevalent guidelines and in case of existing banks, will be in line with the earlier guidelines issued by RBI, i.e., 15%;ii. Natural persons and non-financial entities (other than promoters/ promoter group) – limit is 10%;iii. Financial institutions (which are non-regulated/ non-diversified and non-listed) – limit is 15%; andiv. Financial institutions (which are regulated, well diversified, and listed entities, supranational institutions or public sector undertaking or government) – limit is 40%.In certain circumstances, higher stake or strategic investment by promoters or non-promoters through capital infusion by domestic or foreign entities/ institution, may be permitted under circumstances such as relinquishment by existing promoters, rehabilitation or restructuring of weak banks, entrenchment of existing promoters or in the interest of the bank or for consolidation in the banking sector.Other key principles under the Directions include the following: (a) voting rights will be limited to a ceiling of 15%, regardless of the shareholding limit; (b) any acquisition of shareholding/ voting rights of 5% or more of the paid-up capital or total voting rights of the bank will be subject to prior RBI approval; and (c) no bank in India will acquire an equity stake in another bank, if it results in the investing bank holding 10% or more in the investee bank’s equity capital, other than in case of exceptional circumstances such as restructuring of weak banks or in the interest of consolidation in the banking sector, etc.




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