Financial Daily from THE HINDU group of publications
Tuesday, Jun 22, 2004
Financial Daily from THE HINDU group of publications Tuesday, Jun 22, 2004 |
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RBI & Other Central Banks Money & Banking - Private Banks RBI keen to ensure wide equity base in private banks Poornima Mohandas
Mumbai , June 21 THE Reserve Bank of India is toying with the idea of making ownership of private banks more diversified. Currently, an Indian promoter can own up to 49 per cent stake in private banks. There is a school of thought in the central bank that diversified shareholding will result in more professionalism and less of skewed lending decisions. The RBI is also seeking to have more say in the appointment of the top management in private banks. The move, according to sources, has been prompted by past incidents of tainted managements bringing down private banks. As the regulator, the RBI wants to ensure that incidents such as that of Global Trust Bank and Nedungadi Bank are not repeated. Diversified shareholding, as in the case of ICICI Bank and HDFC Bank, is, perhaps, what the central bank envisages for all the other banks, said a source. "Diversified shareholding can certainly bring in more professionalism and will prevent the promoter pushing decisionsforcibly. But it could also make a bank more vulnerable to takeovers," said a private bank official. "Any foreign bank with deep pockets can just purchase shares from the market and buy out a private bank if it is very widely held. But the present 10 per cent on voting rights will prevent that for the moment," he added. At present, no communication has gone out to the private sector banks regarding the paring down of promoter shareholding, but IndusInd Bank was recently asked to bring down the promoter group company, Ashok Leyland's stake from 15.6 per cent to 10 per cent in the bank following the bank's merger with NBFC Ashok Leyland Finance Ltd. Bank officials believe that Ashok Leyland's stake, as a result of the merger, was asked to be trimmed since corporate holding in private banks is capped at 10 per cent. But the central bank may also be undertaking the exercise of paring group shareholding although promoter-company IndusInd International Holdings Ltd (IIHL) together with Ashok Leyland hold only 47 per cent in the bank, which is well within the cap of 49 per cent set for the Indian promoter in private banks. The apex bank will be more vigilant in carrying out background checks before appointments of CEOs in private banks. "Absolute integrity" will be tested by the regulator, said the sources. Currently, private banks submit a list of three preferred candidates approved by the board, and the RBI typically approves the first candidate, except in very few instances.
More Stories on : RBI & Other Central Banks | Private Banks
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