Why RBI Favors Minimum 40% Promoter's Stake In Private Banks During Lock-In Period

The Reserve Bank of India (RBI) accepted the internal group's recommendation that no changes be made to the initial lock-in requirements of holding a minimum 40 per cent stake by promoters in private banks.

RBI favors the continuation of the 40 per cent minimum holding for the first five years to ensure that promoters maintain their skin in the game and also to maintain the credibility of the control of the promoter group till the business is 'properly established and stabilised', according to RBI's statement.

It will also ensure that the promoter remain committed to the bank in the formative years, providing it necessary strategic direction. The RBI said that there is no need to fix any cap on the promoters' holding in the initial five years as the existing licensing guidelines have not mandated any cap on promoter's shareholding in the first five years as initially it may be challenging for a new bank to raise capital from external sources or investors.

So allowing them to hold a higher stake will enable the promoter to infuse additional capital, as and when required, the RBI said, accepting the report. 

However, the central bank has allowed promoters to retain a 26 per cent shareholding in banks, higher than the current cap of 15 per cent. The move will benefit leading private lenders such as Kotak Mahindra Bank and IndusInd Bank, among others, which have been seeking more time from the regulator to divest their stakes for many years now

The RBI accepted 21 of the 33 recommendations of the internal working group and said that the remaining suggestions are under its consideration