LOCAL OWNERS CAN HOLD 49% IN BANKS 

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By FROM OUR CORRESPONDENT in Mumbai
  • Published 7.06.02
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Mumbai, June 7 :    Mumbai, June 7:  The Reserve Bank of India (RBI) today raised to 49 per cent from 40 per cent the cap on the stake held by Indian promoters in private sector banks. The move creates a level-playing field for Indian promoters of these banks vis-a-vis their foreign counterparts, who have the flexibility of holding 49 per cent. After today's announcement, Indian promoters required to dilute their stake to 40 per cent as part of the central bank's guideline will not have to do so any more. In IDBI Bank for instance, where the promoters' holding is 58 per cent, lead institution IDBI will have to cut its stake only by 9 per cent. This could well be the case for new banks like Kotak Mahindra Finance Ltd (KMFL), where the promoters' stake is pegged at 61 per cent. "In all such cases, the banks will be not compelled to bring their promoters stake below 49 per cent, if they were to follow the RBI rule. However, it all depends on the stress and the benefits that a bank sees through the induction of a strategic investor," said an observer. Under revised guidelines for new private banks issued on January 3, 2001, the RBI restricted the promoters' contribution to 40 per cent of the paid-up capital at all times. If the initial contribution overshot 40 per cent, it would have to be cut within a year of business. Promoters' contribution included the equity of Indian shareholder and the foreign co-promoter, if any. For new private sector banks established under a January 1993 norm, the promoters' equity was required to be brought down to 40 per cent within a stipulated period. In February 2002, the Reserve Bank had clarified that foreign direct investment up to 49 per cent from all sources would be allowed in private banks under the automatic route, subject to guidelines issued from time to time. As a result, foreign direct investment through strategic investment or private placement was permitted up to 49 per cent of a private bank's equity. Since this was higher than the limit of 40 per cent prescribed for promoters, it led to an "anomalous situation" against the equity of Indian promoters, the central bank said in a statement issued today. The duality sparked calls from Indian promoters for a level-playing field. The Reserve Bank of India reviewed the issue with the government, as a result of which the maximum shareholding for Indian promoters has now been increased to 49 per cent of their paid-up capital. "The other licensing conditions for entry of new banks and those stipulated for foreign direct investment will remain the same," it said.