Reserve Bank of India is the apex body of banking and regulations in the country. Reserve Bank of India has now sanctioned the much-awaited banking norms for private banks on ownership and corporate structure. RBI has accepted 21 of the total 33 recommendations made by the Internal Working Group and the controversial recommendations related to corporate ownership of banks are still under scrutiny by the bank. Here are the complete details regarding the RBI’s new norms for Private Banks and candidates who are preparing for the competitive examination are requested to go through the details.
Internal Working Group (IWG)
Internal Working Group is headed by the director of the central board of the RBI, Prasanna Kumar Mohanty. This group was set up on June 12, 2021, for submitting a report regarding the suggestions for the new norms on private banks. It suggested in its report, published on November 20, that large corporate or industrial houses should be allowed in banking following the amendments to the Banking Regulation Act. This recommendation created an uproar among former governors and deputy governors of RBI. RBI has not year accepted this suggestion put forward by the Internal Working Group.
RBI’S New Norms & Recommendations
The given below are the highlights of the new norms and regulations formed by the Reserve Bank of India for the Private Sector Banks.
- Reserve Bank of India informed through the new regulation that, the non-promoter shareholding cap for an individual or non-financial institution should be 10 percent as opposed to what was suggested by IWG to keep it 15 percent for all kinds of non-promoter shareholders.
- However, the Reserve Bank of India allowed the financial institutions, public sector undertakings (PSUs), supranational institutions, or the government to hold 15 percent in private banks.
- As per RBI’s earlier regulations, non-promoter shareholding can be increased to 40 percent for well-diversified, regulated, and listed financial institutions, PSUs, supranational institutions, or the government.
- Pledge of shares by promoters during the initial five-year lock-in period has been disallowed. The Reserve Bank will also introduce a reporting mechanism for pledging shares by promoters of private sector banks.
- The Central Bank has rejected the recommendation to allow payments banks to convert themselves into small finance banks having three years of experience.
- It accepted IWG’s recommendation that banks should have higher initial capital of at least Rs 1,000 crore.
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