The Hindu Business Line : Net worth floor for private banks fixed at Rs 300 cr

PRIVATE banks will have to maintain a net worth of Rs 300 crore at all times and those who are yet to achieve this will have to submit a time-bound programme for capital augmentation to the Reserve Bank of India.

In its guidelines on the ownership and governance in private sector banks, the central bank has said the capital requirement of existing private sector banks should be on par with the entry capital requirement for new private sector banks prescribed in RBI guidelines of January 3, 2001, which is initially Rs 200 crore, with a commitment to increase to Rs 300 crore within three years. Where the net worth declines to a level below Rs 300 crore, it should be restored to Rs 300 crore within a reasonable time.

The guidelines on acknowledgement for acquisition or transfer of shares issued on February 2004 will be applicable for any acquisition of shares of five per cent and above of the paid-up capital of the private sector bank, the central bank has said.

In the interest of diversified ownership of banks, the objective will be to ensure that no single entity or group of related entities has shareholding or control, directly or indirectly, in any bank in excess of 10 per cent of the paid-up capital of the private sector bank. Any higher level of acquisition will be with the prior approval of RBI.

Where ownership is that of a corporate entity, the objective will be to ensure that no single individual or entity has ownership and control in excess of 10 per cent of that entity. Where the ownership is that of a financial entity, the objective will be to ensure that it is a well established regulated entity, widely held, publicly listed and enjoys good standing in the financial community.

Banks (including foreign banks having branch presence in India) and financial institutions should not acquire any fresh stake in a bank's equity shares, if by such acquisition, the investing bank's FI's holding exceeds 5 per cent of the investee bank's equity capital as indicated in RBI circular dated July 6, 2004.

As per existing policy, large industrial houses will be allowed to acquire, by way of strategic investment, shares not exceeding 10 per cent of the paid-up capital of the bank subject to RBI's prior approval. Furthermore, such a limitation will also be considered if appropriate, in regard to important shareholders with other commercial affiliations.

In case of restructuring of problem or weak banks or in the interest of consolidation in the banking sector, RBI may permit a higher level of shareholding, including by a bank.

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