MUMBAI: The RBI has imposed a Rs 1-crore penalty on SBI for contravention of the Banking Regulation Act and holding shares in borrower companies exceeding 30%.
The RBI had also imposed fines on two payment system operators — Tata Communications Payment Solution (TCPSL) and Appnit Technologies. TCPSL was fined Rs 2 crore for not meeting guidelines on white-label ATM deployment. Appnit was penalised for not following RBI norms on maintenance of escrow account balance and net worth requirement.
In a press release, the central bank said that during inspection of SBI, it was detected that the bank held shares in borrower companies, as pledgee, of an amount exceeding 30% of paid-up share capital of those companies. This is in contravention of sub-section (2) of section (19) of the Banking Regulation act.
“In furtherance to the same, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed on it,” the RBI said in a statement. After considering the bank’s reply to the notice, oral submissions made during the personal hearing, and additional submissions made by the bank, the RBI decided that a penalty was justified.
However, RBI has allowed promoters to retain a 26% shareholding in banks, higher than the current cap of 15%, bringing relief to bankers like Kotak Mahindra Bank’s Uday Kotak.
Reserve Bank of India (RBI) has refrained from permitting corporate ownership of banks, putting on hold a working group recommendation that said large corporate and industrial houses may be allowed to promote banks post amendments to the Banking Regulations Act, 1949. The central bank has also not accepted a recommendation to allow well-run, large NBFCs, including those owned by a corporate house, to become banks. Both suggestions, it said, on Friday, are “under examination”.
However, RBI has allowed promoters to retain a 26% shareholding in banks, higher than the current cap of 15%, bringing relief to bankers like Kotak Mahindra Bank’s Uday Kotak. The 26% is in line with the ceiling on the voting rights of a shareholder and in keeping with the current FDI policy. The PJ Nayak Committee had in 2014 recommended a promoter holding of 25%, on the grounds that low promoter shareholding could make banks vulnerable by weakening the alignment between the management and shareholders.
Post the five-year lock-in, promoters can choose to lower holdings to below 26%. In the initial five-year lock-in period, the promoter’s stake must be a minimum of 40%.
RBI has simplified the ownership rules for non-promoter shareholders specifying a cap of 15% for all categories of financiaI Institutions, supranational institutions, PSUs and the government. It has retained the cap of 10% on the shareholding of non-promoter shareholders who are natural persons and non-FIs.
Though the preferred structure, an NOFHC (Non-mandatory Non-operative Financial Holding Company) will be mandatory only where the individual promoters, promoting and converting entities have other group entities, provided these promoters and entities are eligible to set up a Universal Bank or a Small Finance Bank (SFB). Banks that currently operate under an NOFHC can dismantle it if they do not have other group entities in their fold.
The initial minimum capital requirements for new bank licences have been raised to `1,000 crore for a universal bank from `500 crore at present and `300 crore for an SFB from `200 crore.
Future SFBs must be listed within ‘six years from the date of reaching the net worth equivalent to the prevalent entry capital requirement prescribed for universal banks’ or ‘10 years from the date of commencement of operations’, whichever is earlier. The internal working group constituted on June 12 last year, under the chairmanship of PK Mohanty, director, central board of RBI, had submitted its report in November 2020.
Presenting the Budget for 2021-22, finance minister Nirmala Sitharaman had announced the privatisation of two PSBs and one general insurer, as part of the Centre’s disinvestment plan to rake in Rs 1.75 lakh crore.
The Banking Laws (Amendment) Bill, 2021, which will be introduced in the Winter Session of Parliament starting November 29, will likely propose that the minimum government holding in public sector banks (PSBs) be trimmed to 26% from 51%, an official source said.
The move is aimed at facilitating the privatisation of two PSBs, in sync with the announcement in the Budget for 2021-22. On Wednesday, shares of Indian Overseas Bank (IOB) and Central Bank of India rallied, amid speculations that the government had made a decision to privatise these two lenders, as suggested by the Niti Aayog. However, the Centre is yet to formally name the privatisation candidates.
While the draft Bill provides for the lower shareholding, a final call will be taken by the Cabinet, which will clear the Bill before it can be introduced in Parliament, added the source.
“(However) If it’s found, after consultations with investors, that they are not interested unless the government sells its entire stake in the select PSBs, the government is open to consider complete privatisation as well. But initially, it may opt for retaining a 26% stake,” said another source who is privy to discussions.
Analysts fear any government proposal to retain 26% stake in the PSBs may not go down well with potential suitors. For instance, the government was forced to put its entire stake in state-run Air India on the block after its initial plan to hold at least 26% in the national carrier didn’t elicit any response from investors.
The new Bill proposes to “effect amendments in Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980 and incidental amendments to Banking Regulation Act, 1949 in the context of Union Budget announcement 2021 regarding privatisation of two Public Sector Banks”, according to the list of legislative business for the winter session of Parliament.
These laws had led to the nationalisation of banks, so relevant provisions of these laws have to be changed to pave the way for the privatisation.
Presenting the Budget for 2021-22, finance minister Nirmala Sitharaman had announced the privatisation of two PSBs and one general insurer, as part of the Centre’s disinvestment plan to rake in Rs 1.75 lakh crore.
Already, Parliament had in its last session cleared a Bill to facilitate the privatisation of state-run general insurance companies by removing the requirement of the central government to hold at least 51% stake in an insurer.
Niti Aayog has already recommended the sell-off of IOB and Central Bank of India to the core group of secretaries on disinvestment, headed by the Cabinet Secretary. This core group will send its recommendation to the alternative mechanism (AM), headed by the finance minister, for its approval. Finally, it will be cleared by the Cabinet.
Welcome to the refurbished site of the Reserve Bank of India.
The two most important features of the site are: One, in addition to the default site, the refurbished site also has all the information bifurcated functionwise; two, a much improved search – well, at least we think so but you be the judge.
With this makeover, we also take a small step into social media. We will now use Twitter (albeit one way) to send out alerts on the announcements we make and YouTube to place in public domain our press conferences, interviews of our top management, events, such as, town halls and of course, some films aimed at consumer literacy.
The site can be accessed through most browsers and devices; it also meets accessibility standards.
Please save the url of the refurbished site in your favourites as we will give up the existing site shortly and register or re-register yourselves for receiving RSS feeds for uninterrupted alerts from the Reserve Bank.
Do feel free to give us your feedback by clicking on the feedback button on the right hand corner of the refurbished site.
Welcome to the refurbished site of the Reserve Bank of India.
The two most important features of the site are: One, in addition to the default site, the refurbished site also has all the information bifurcated functionwise; two, a much improved search – well, at least we think so but you be the judge.
With this makeover, we also take a small step into social media. We will now use Twitter (albeit one way) to send out alerts on the announcements we make and YouTube to place in public domain our press conferences, interviews of our top management, events, such as, town halls and of course, some films aimed at consumer literacy.
The site can be accessed through most browsers and devices; it also meets accessibility standards.
Please save the url of the refurbished site in your favourites as we will give up the existing site shortly and register or re-register yourselves for receiving RSS feeds for uninterrupted alerts from the Reserve Bank.
Do feel free to give us your feedback by clicking on the feedback button on the right hand corner of the refurbished site.
Welcome to the refurbished site of the Reserve Bank of India.
The two most important features of the site are: One, in addition to the default site, the refurbished site also has all the information bifurcated functionwise; two, a much improved search – well, at least we think so but you be the judge.
With this makeover, we also take a small step into social media. We will now use Twitter (albeit one way) to send out alerts on the announcements we make and YouTube to place in public domain our press conferences, interviews of our top management, events, such as, town halls and of course, some films aimed at consumer literacy.
The site can be accessed through most browsers and devices; it also meets accessibility standards.
Please save the url of the refurbished site in your favourites as we will give up the existing site shortly and register or re-register yourselves for receiving RSS feeds for uninterrupted alerts from the Reserve Bank.
Do feel free to give us your feedback by clicking on the feedback button on the right hand corner of the refurbished site.
Welcome to the refurbished site of the Reserve Bank of India.
The two most important features of the site are: One, in addition to the default site, the refurbished site also has all the information bifurcated functionwise; two, a much improved search – well, at least we think so but you be the judge.
With this makeover, we also take a small step into social media. We will now use Twitter (albeit one way) to send out alerts on the announcements we make and YouTube to place in public domain our press conferences, interviews of our top management, events, such as, town halls and of course, some films aimed at consumer literacy.
The site can be accessed through most browsers and devices; it also meets accessibility standards.
Please save the url of the refurbished site in your favourites as we will give up the existing site shortly and register or re-register yourselves for receiving RSS feeds for uninterrupted alerts from the Reserve Bank.
Do feel free to give us your feedback by clicking on the feedback button on the right hand corner of the refurbished site.
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