RBI proposes allowing corporate houses into banking business

The regulator has also proposed that well-run NBFCs with an asset size of over Rs 50,000 crore may be considered for conversion into banks

The Reserve Bank of India (RBI) has proposed allowing big-ticket corporate houses into the banking business, a decision which is likely to see many entities applying for banking licences.

"Large corporate/industrial houses may be allowed as promoters of banks only after necessary amendments to the Banking Regulation Act, 1949 (to prevent 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," RBI said in a report.

In June this year, the RBI had constituted an Internal Working Group (IWG) to review extant ownership guidelines and corporate structure for Indian private sector banks.

The RBI on Friday made public some of the recommendations of the IWG.

The regulator has also proposed that well-run shadow banks (NBFCs) with an asset size of over Rs 50,000 crore may be considered for conversion into banks subject to completion of 10 years of operations and meeting due diligence criteria. India has 9,601 shadow banks, of which the top 50 account for 80% market share by loans.

However, the central bank has proposed to double the minimum initial capital required to start a bank. The minimum initial capital requirement for licensing new banks should be enhanced from Rs 500 crore to Rs 1,000 crore for universal banks and from Rs 200 crore to Rs 300 crore for small finance banks, the IWG said.

The working group report favours raising the cap on promoter stake to 26% from the current 15%.

The report was posted on the RBI's website on Friday for comments from stakeholders and members of the public, the RBI said. Comments on the report may be submitted by January 15, 2021, through email, it added.