In order to spur the growth in the operations, manufacturing and services activities and concrete the banking system, Indian administrative agencies take a lot of initiatives to address the future plans. As world agencies has started discounting Indian economy as a nation of 21st century that may be a dark horse in terms of exports generations, ease of doing business, multiplication of financial transactions and mammoth of technology, Reserve Bank of India has come forward with a roadmap to impulse banking system, which will act as a backbone to support the economic activities. On June 12, 2020, RBI had constituted an Internal Working Group (IWG) to review the bye-laws relating to ownership guidelines and autonomous corporate structure for Indian private sector banks.
Raising stake ceiling from 15% to 26%
Much long-awaited move for increasing the promoter’s stake from a ceiling of 15%, which has narrowed the voting rights of Uday Kotak from Kotak Mahindra Bank despite having 26% stake in the shareholding structure has been addressed significantly. The think tank committee has recommended for raising promoters stake to 26% from 15% stake stated earlier, which will not force the promoters for further dilution and retaining their controlling rights. This will also advocate the conglomerates to strengthen their chain of command and supervisory mechanism. If things get papered swiftly, Indian corporate houses will be fortunate to enter into commercial banking after 2nd nationalization of bank in 1980.
New players in Commercial Banking club
Next major amendment which has made by International Work Group of Reserve Bank of India is the inculcation of NBFC’s into the major banking group. NBFC’s having an asset size of Rs. 50,000 crores and operating from more than 10 years will be given green signal after a due diligence and compliance with additional stipulations specified. Large NBFC’s backed by corporate houses such as: M&M Finance, Bajaj Finance, Aditya Birla Capital, L&T Finance, Shriram Finance and Muthoot Finance will get a chance to compete with the stabled-historic private sector banks and generate cheaper deposits through CASA facility.
Enhancement in Capital for Banking License
As per the specifications under the recommended report from Internal Working Group of RBI, the minimum capital requirement for commercial banks could be increased from Rs. 500 crores to Rs. 1,000 crores. In case of Small Finance Banks, the initial capital requirement could be increased from Rs. 200 crores from Rs. 300 crores.
Payment Banks are required to have a track record of three years who are planning to turn themselves into Small Finance Bank.