India needs Indian banks

The arc of the Reserve Bank of India’s (RBI's) policy on bank ownership has changed over time.

- AMIT TANDON

Just over two decades ago, the regulator attached primacy to skin in the game.The thinking thereafter evolved, and the central bank saw merit in diversified ownership with the “promoter shareholders” having limited or no ability to influence the board. The recent approvals to Tokyo-headquartered SMBC to acquire a 24 per cent stake in Yes Bank and to Dubai-based NDB to acquire around 60 per cent in RBL Bank suggest that the RBI now favours ownership by regulated institutions as its preferred mode.

The early evolution of this policy is seen through Kotak Mahindra Bank Limited (KMBL).

KMBL received its banking licence in 2001, through the conversion of a non-banking financial company (NBFC), where promoters held 61 per cent of the equity. The licence required that the promoter holding be reduced to 49 per cent of the paid-up capital. Tellingly, the licence did not prescribe reducing share ownership, just the minimum threshold.

The policy shifted meaningfully in 2013 when the RBI revised its ownership guidelines. These required banks to be set up only through a wholly-owned nonoperative financial holding company (“NOFHC”). The RBI still saw some merit in the argument that a “promoter” with a higher stake will run the banks better but began balancing this with the argument in favour of disbursed ownership — an idea it began socialising from 2005. The guidelines mandated that promoter’s initial 40 per cent stake be locked in for a period of five years. And that shareholding in the NOFHC be brought down to 15 per cent of the capital within 12 years from the date of commencement of business.