Mumbai, Jan. 29: The Reserve Bank today put in place more checks on the way shares are acquired in private banks by making its own approval of these deals less easier to get than it has been in all these years. The guidelines aim at streamlining existing procedures and putting in place safeguards like checking the source of funds before giving the go-ahead.

The measures come at a time when consolidation in the domestic private banking sector is expected to gain momentum. Under the guidelines, the RBI laid down that while granting these acknowledgements, there would be a condition that a fresh permission will be needed for future share purchases.

Under current norms, allotment or transfer of shares that takes the aggregate shareholding of an individual or group to 5 per cent or more in a bank must have the acknowledgement of the RBI before the bank can effect the allotment or transfer of these shares. It is required to approach the RBI with all relevant details.

The central bank said it would look at a variety of factors before taking a final call. One of these would oblige investors whose stake will shoot up beyond the specified thresholds to meet “fitness and propriety tests”.

Additionally, the RBI said that in determining whether the applicant is “fit and proper” to hold the position of a shareholder, many conditions would come into play. These will centre on the integrity, reputation and track-record in financial matters, compliance with tax laws. The RBI will also see if the applicant has gone through proceedings of a serious disciplinary or criminal nature, and whether the applicant has a record or previous business conduct.

Also under the microscope will be the source of funds for acquisition and the history of corporate in areas of corporate governance, financial strength and integrity.

In cases where acquisition would take the shareholding of the applicant to 10 per cent and up to 30 per cent, the RBI will look into source and stability of funds for acquisition, business-record and experience. And, in cases where the applicant is a financial entity, it will test whether it is a widely held entity, publicly listed and a well-established financial firm.