RBI proposes to allow corporate houses in banking business

The Reserve Bank of India has proposed to allow the big-ticket corporate houses into the banking business, a decision which is likely to witness many more people in the country applying for banking licenses.

"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," according to a report by the Internal Working Group (IWG) constituted by the RBI.

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The regulator has also proposed that well-run shadow banks 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.

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

The report is placed on the RBI website today for comments of stakeholders and members of the public, RBI said. Comments on the report may be submitted by January 15, 2021, through email, it added.