Big Corporate Houses Will Be Able To Open Banks

Big corporate houses will be able to open Banks, the RBI panel’s recommendation, possible major changes in the banking structure of the country.

The path may be cleared for the big corporate houses of the country to enter the banking sector.

An RBI committee has recommended allowing non-banking financial companies (NBFCs) operating on behalf of these corporate houses to function as a whole bank.

Not only this, but it has also been recommended to increase the promoter’s stake in these banks from the existing 15 percent to 26 percent.

To implement these recommendations, the government will have to discuss many levels and make huge amendments to the Banking Act.

But after implementing them, there will be a big change in the banking sector of the country.

The RBI constituted an internal task force in June 2020 to suggest changes in the pattern of equity holding in banks, the report of which was made public on Friday.

The first suggestion of the Working Group is that in 15 years, the promoters’ share is 26 percent. The second suggestion is that the shareholding limit for non-promoter shareholders should be 15 percent.

The third suggestion is to allow large corporate houses or industrial companies to become promoters through amendments to the Banking Act, 1949.

There is also a recommendation to convert NBFCs of more than Rs.50 thousand crores run by big companies into banks after 10 years of operations.

This means that NBFCs like Bajaj Finance, L&T Finance will now be able to be converted into banks.

Payment Bank has also been recommended to convert Small Finance Bank, Small Finance Bank, and Payment Bank into Universal Bank on the experience of six years on three years of experience.

The capital base limit for banking licenses has been recommended to be increased from Rs 5,00 crore to Rs 1,000 crore.

Among the above suggestions, the most important corporate houses are to become promoters of banking companies and increase the stake of promoters to 26 percent.

For this, the government will have to change many rules. For example, according to Section 20 of the Banking Act, no loan is given to any other company associated with a director in a banking company.

In this regard, the rule of ‘connected lending’ applies. Changes have to be made in this rule. It is believed that this suggestion is in some way a roadmap for the future banking system of the country.