Allowing non-banking finance companies to convert into banks and making payment banks eligible to covert to small-finance banks after three of experience, are among measures suggested by an internal working group of the Reserve Bank of India. The internal working group (IWG) had been constituted in June this year to review extant ownership guidelines and corporate structure for Indian private sector banks.
“Well run large NBFCs, with an asset size of Rs 50,000 crore and above, including those which are owned by a corporate house, may be considered for conversion into banks provided they have completed 10 years of operations and meet the due diligence criteria and satisfy the additional conditions specified in this regard,” the IWG said in its report released on Friday.
Separately, the cap on promoters’ stake in a bank in long run of 15 years may be raised to 26 per cent of the paid-up voting equity share capital of the bank from the current levels of 15 per cent, it further suggested.
“This stipulation should be uniform for all types of promoters and would mean that promoters, who have already diluted their holdings to below 26 per cent, will be permitted to raise it to 26 per cent of the paid-up voting equity share capital of the bank,” it said.
However, large corporate and industrial houses may be allowed as promoters of banks, only after necessary amendments to the Banking Regulations Act, to deal with connected lending and exposures between the banks and other financial and non-financial group entities; and strengthening of the supervisory mechanism for large conglomerates, including consolidated supervision, it added.
The IWG feels that the on-tap licensing provisions on universal banks and small finance banks with regards to individuals and entities/groups, are appropriate.
“However, for payments banks intending to convert to a small finance bank, track record of three years of experience as payments bank may be sufficient,” it said.
Payment Banks are entities that can accept deposits, offer savings and current bank accounts and also issue debit cards. However, they can’t lend or issue credit cards. The central bank had given licenses to 11 such entities in 2015. The same year, RBI also granted licenses to 10 entities to start a small finance bank, which can offer basic banking services including accepting deposits and lending.
According to existing guidelines, a payments bank with at least an experience of five years can convert to a small finance bank.
The IWG suggested that initial paid-up voting equity share capital required to set up a new small finance bank, may be increased to Rs 300 crore (it is currently Rs 200 crore), while the same for universal banks be raised to Rs 1,000 crore (from Rs 500 crore).
For urban cooperative banks looking to transition to a small finance bank, The initial paid-up voting equity share capital/ net worth should be Rs 150 crore, which has to be increased to Rs 300 crore in five years, it further added.
Also, almost all the experts were of the view that the present prescription of listing within six years from commencement of operations, for universal bank in the ‘on-tap’ licensing guidelines can be followed uniformly including small finance banks, which had been given only three years from reaching networth of Rs 500 crore, the report noted.
“In a period of six years, a new bank (Universal, small finance bank or payments bank) is expected to have matured in its experience in running banking operations, and achieved a critical size which would be ready for additional governance compliance required for listing, as well as regular and quarterly scrutiny and questioning by capital market investors,” it said.