Millennium Post

'Ownership norms for private lenders hit large FIs' expansion'

New Delhi: The Reserve Bank of India (RBI) needs to relook the ownership guidelines for private sector banks as 'multiple and ambiguous rules' are restricting expansion of home-grown large financial institutions, says a report. The Centre for Economic Policy Research (CEPR) in a recent paper said the bevy of ownership prescriptions is at times "contradictory and ambiguous" and there are different yardsticks for banks licensed under different conditions.

Regarding 'on tap licensing guidelines' the report noted, "the said guidelines had elaborate and complex prescription on ownership by way of multi layering, all to ensure control on ownership". Further, the report blamed the complex rules for the lack of interest among Indian institutions to set up new banks.

"It is pertinent to note that even after 24 months of announcing such on tap guidelines, not a single institution has come forward to set up a bank," it said. Under the current RBI rules, private sector bank promoters are required to dilute their shareholding to 15 per cent within 15 years of starting operations.

The objective of such a rule is that diverse ownership would prevent concentration of power to lead better governance, it said. However, such shareholding dilution primarily ends up with foreign investors, who are the majority owners in most of the Indian private sector banks.

"India's four of the top five banks are majorly foreign owned now," it said. The foreign ownership in HDFC Bank is around 72 per cent, ICICI Bank (60 per cent), Axis Bank (52 per cent), IndusInd Bank (73 per cent) and Kotak Mahindra Bank (47 per cent), the report noted.

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