The Reserve Bank on Friday proposed to review the guidelines on ownership, governance and corporate structure of private sector banks in the backdrop of key developments in the space in the recent years.
The five-member internal working group to review the guidelines will be headed by RBI Central Board Director P K Mohanty, the central bank said in a release.
The committee shall submit its report by September 30, 2020.
"The review would provide an opportunity to harmonise the norms applicable to banks set up at different time periods, irrespective of their date of commencement of business," RBI said.
The panel has been asked to review the extant licensing guidelines and regulations relating to ownership and control in Indian private sector banks and suggest appropriate norms, keeping in mind the issue of excessive concentration of ownership and control, as well as international practices and domestic requirements.
It will also examine and review the "norms for promoter shareholding at the initial/licensing stage and subsequently, along with the timelines for dilution of the shareholding; and to identify any other issue germane to the subject matter and make recommendations thereon."
The review of promoter's stake in private sector banks is significant in the wake of the out-of-court settlement between RBI and Kotak Mahindra Bank earlier this year.
According to sources, the regulator has allowed the promoter of Kotak Mahindra Bank to limit stake to 26 per cent with voting right ceiling of 15 per cent.
The RBI's extant rules mandate that a private bank's promoter will need to pare holding to 40 per cent within three years, 20 per cent within 10 years and 15 per cent within 15 years.
The same applied to Bandhan Bank and IDFC Bank which got in principle approval in 2014.
RBI said as macroeconomic, financial market and technological developments continue to influence the future of banking and transform how the entire industry operates, it is necessary to align regulations to meet the requirements of a dynamic banking landscape.
RBI has already issued the guidelines for on-tap licensing of universal banks as well as small finance banks in order to leverage these developments for engendering competition through entry of new players.
Also, the broad policy relating to ownership and control in Indian private sector banks is guided by the framework issued in February 2005.
It further said though the overarching principle that the ownership and control of private sector banks should be well diversified and that the major shareholders are 'fit and proper' remains unchanged, the specific contours have evolved over the years with specific prescriptions being given as part of licensing guidelines issued at various points in the past.
"It is, therefore, felt necessary to compressively review the extant guidelines on ownership, governance and corporate structure in private sector banks, taking into account key developments over the years which have a bearing on the issue," it said.
Besides Mohanty, the internal working group comprises Sachin Chaturvedi, director, RBI Central Board; and Lily Vadera and S C Murmu, both executive directors. Chief General Manager Shrimohan Yadav has been named convenor of the panel.
The panel has also been asked to examine and review the eligibility criteria for individuals/ entities to apply for banking licence and make recommendations on all related issues.
Besides, it will study the current regulations on holding of financial subsidiaries through non-operative financial holding company (NOFHC) and suggest the manner of migrating all banks to a uniform regulation in the matter, including providing a transition path.