Reforms flagged for shareholding in private sector banks

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Reforms flagged for shareholding in private sector banks
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Promoters of private sector banks may be allowed to retain their share-holding up to 26% if the Reserve Bank of India (RBI) accepts suggestions of an internal working group (IWG) set up to review existing ownership guidelines and corporate structures of Indian private sector banks.

The IWG, constituted by the RBI in June this year, recommend eligibility criteria for: individuals and entities applying for a banking licence; the preferred corporate structure for banks; and norms for long-term promoter shareholding.

“Increasing the promoter shareholding threshold to the proposed 26% in the 15th year of bank operations is fair and would give promoters a semblance of control,” says Kaushalya Venkataraman, a corporate lawyer and partner at Chandhiok & Mahajan specializing in M&A, venture capital and private equity. According to prevailing regulations, promoters of private sector banks have to pare their shareholding to 40% within three years, 20% in 10 years, and 15% by the 15th year of operations.

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