The Reserve Bank of India on Monday issued Directions on “Acquisition and Holding of Shares or Voting Rights in Banking Companies”, allowing promoters to hold 26 per cent of the paid-up share capital or voting rights of a bank after the completion of 15 years from commencement of its business even as any person intending to make an acquisition which is likely to result in major shareholding in a bank has to seek its prior approval for acquisition.
Further, the central bank wants continuous monitoring of such shareholders for ‘fit and proper’criteria.
During the period prior to the completion of the 15 years, the promoters of banking companies may be allowed to hold a higher percentage of shareholding as part of the licensing conditions or as part of the shareholding dilution plan submitted by the banking company and approved by the Reserve Bank with such conditions as deemed fit.
Reserve Bank may also permit higher shareholding on a case-to-case basis under circumstances such as relinquishment by existing promoters, supervisory intervention including under Prompt Corrective Action, reconstruction/restructuring of banks, entrenchment of existing promoters or any other action in the interest of the banking company and its depositors or in the interest of consolidation in the banking sector, etc., per the guidelines issued along with the Directions..
Deemed fit
While allowing such higher shareholding, Reserve Bank may impose conditions as deemed fit (including dilution of such higher shareholding within a timeline).
It may be pertinent to mention here that the RBI had in 2021 accepted the recommendation of the “internal working group (IWG) to review extant ownership guidelines and corporate structure for Indian private sector banks”, whereby the cap on promoters’ stake in long run of 15 years can be raised from the current levels of 15 per cent to 26 per cent of the paid-up voting equity share capital of the bank.
The Directions on “Acquisition and Holding of Shares or Voting Rights in Banking Companies”gives effect to one of the IWG’s recommendations.
RBI said it is issuing the directions with the intent of ensuring that the ultimate ownership and control of banking companies are well diversified and the major shareholders of banking companies are ‘fit and proper’ on a continuing basis.
On receipt of the application (to make an acquisition) and declaration from the applicant, the Reserve Bank may seek comments from the banking company on the proposed acquisition.
Continuous monitoring
The concerned banking company shall furnish its comments after considering all relevant aspects along with a copy of the relevant board resolution and information (Form A relating to Applicant’s track record on integrity and reputation, Report of the banking company on the proposed acquisition, and whether the board consider/suspect the proposed acquisition as an attempt for takeover or for destabilisation of the management, among others) specified in the directions to the Reserve Bank within 30 days.
For this purpose, banking companies shall put in place a board-approved ‘fit and proper’ criteria for major shareholders.
A banking company shall continuously monitor on an ongoing basis: (a) its major shareholders who have completed the approved acquisition; (b) those applicants for whom comments have been provided by the concerned banking company to the Reserve Bank for approval to have major shareholding; and (c) those applicants who have been approved by the Reserve Bank to have major shareholding but are yet to complete the approved acquisition, are fit and proper’
The Banking Company is required to obtain, within one month of the close of financial year, a report on any changes in the information provided in Form A.
